SCHEDULES AND EXHIBITS
Schedule I (a) Initial Closing
Schedule I (b) Additional Closing
Schedule II Schedule of Exception/Disclosures
Exhibit I Certificate of Designations, Preferences and Rights of
Series B Preferred Stock
Exhibit II Common Stock Purchase Warrant
Exhibit III Capitalization Table
Exhibit IV Registration Rights Agreement
Exhibit V Form of Opinion
Exhibit VI Compliance Certificate
Exhibit VII Form of Secured Promissory Note
Exhibit VIII Budget
This SERIES B PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (this
"Agreement"), dated as of December 30, 2005 (the "Execution Date") between
DATAMETRICS CORPORATION, a Delaware corporation (the "Company") and SG DMTI
CAPITAL LLC, a Delaware limited liability company ("Purchaser").
WITNESSETH
WHEREAS, the Company has undertaken to restructure its debts and
liabilities (the "Restructuring");
WHEREAS, the Company owes $2.9 million plus accrued interest to DMTR, LLC,
a Delaware limited liability company ("DMTR"), pursuant to a senior bank loan
assigned to DMTR from Branch Banking and Trust Company, certain bridge
financings assigned to DMTR and a line of credit provided to the Company by
DMTR;
WHEREAS, in conjunction with the Restructuring, the Company has asked DMTR
to convert its debt into 244,736,145 shares of Common Stock of the Company;
WHEREAS, certain shareholders of the Company hold an aggregate of 892,652
shares of the Series A preferred stock of the Company convertible into
48,947,229 shares of Common Stock of the Company;
WHEREAS, Purchaser holds certain promissory notes issued by the Company in
an aggregate principal amount of $499,563 plus accrued interests (collectively,
the "Notes");
WHEREAS, Purchaser holds a $200,000 secured promissory note issued by the
Company (the "Bridge Note");
WHEREAS, Purchaser, on the Initial Closing Date (as defined below), will
cancel the Bridge Note (the accrued interests on the Bridge Note as of the
Initial Closing Date will remain due and payable by the Company);
WHEREAS, in exchange for a wire transfer of $300,000 from Purchaser, the
Company will issue to Purchaser a new secured promissory note in the amount of
$500,000 (the "Secured Note");
WHEREAS, part of the proceeds received in exchange for the Secured Note
will be used by the Company to pay the accrued interests on the Bridge Note, the
Notes and certain other fees relating to the Investment (as defined below) or
the Restructuring;
WHEREAS, this Agreement is contingent to the Restructuring and the
transactions contemplated therein;
WHEREAS, Purchaser has agreed to invest the dollar amounts in the Company
identified in Schedule I attached hereto in return for the issuance by the
Company to Purchaser of shares (the "Preferred Shares") of the Company's Series
B Preferred Stock, identified in such Schedule I, and the issuance by the
Company to Purchaser of warrants for shares of common stock of the Company (the
"Warrant"); and
WHEREAS, the Company and Purchaser wish to set forth their agreement as to
the terms and conditions of the purchase and sale of the Preferred Shares and
the Warrant (the "Investment"); and
WHEREAS, the Company has agreed to effect the registration of the Warrant
Shares pursuant to a Registration Rights Agreement in the form attached hereto
as Exhibit IV (the "Registration Rights Agreement").
NOW THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereto agree as follows:
SECTION 1
DEFINITIONS
As used in this Agreement, capitalized terms shall have the respective
meanings set forth below or in the Section of this Agreement referred to below:
Additional Closing shall have the meaning set forth in Section 3.2.
Additional Closing Date shall have the meaning set forth in Section 3.2.
Affiliate shall mean, as to any Person, any other Person (other than a
subsidiary) (a) which directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, such Person of
the first part, (b) which beneficially owns or holds five percent (5%) or more
of any class of the voting stock of such Person of the first part or (c) five
percent (5%) or more of the voting stock (or in the case of a Person which is
not a corporation, five percent (5%) or more of the equity interests) of which
is beneficially owned or held by such Person of the first part or one of its
subsidiaries. The term "control" means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
a Person, whether through the ownership of voting securities, by contract or
otherwise.
Agreement shall have the meaning set forth in the Preamble hereof.
Bridge Note shall have the meaning set forth in the Preamble hereof.
Budget shall have the meaning set forth in Section 6.25(a).
Business Day shall mean any day other than a Saturday, a Sunday or a day
on which the New York Stock Exchange is closed or on which commercial banks
located in New York City are required or authorized by law to close.
Bylaws shall mean the bylaws of the Company.
Capital Stock shall mean (a) as to any Person that is a corporation (i)
the authorized shares of such Person's capital stock, including all classes of
common, preferred, voting and nonvoting capital stock of such Person, (ii) any
rights, options or warrants to purchase any capital stock (including all classes
of common, preferred, voting and nonvoting capital stock) of such Person, and
(iii) securities of any type whatsoever that are, or may become, convertible
into or exercisable or exchangeable for, or that carry or may carry rights to
subscribe for, any capital stock (including all classes of common, preferred,
voting and nonvoting capital stock) of such Person, including options and
warrants; and (b) as to any Person that is not a corporation or an individual
(i) the ownership interests in such Person (however evidenced), including,
without limitation, the right to share in profits and losses, the right to
receive distributions of cash and property, and the right to receive allocations
of items of income, gain, loss, deduction and credit and similar items from such
Person, whether or not such interests include voting or similar rights entitling
the holder thereof to exercise control over such Person and (ii) any rights,
options, warrants or securities of any type whatsoever that are, or may become,
convertible into or exercisable or exchangeable for, or that carry or may carry
rights to subscribe for, any such ownership interests in such Person, including
options and warrants.
2
Certificate of Designations shall mean the Certificate of Designations,
Preferences and Rights of Series B Preferred Stock of the Company to provide for
the issuance and the rights, preferences and privileges of the Preferred Shares
(attached hereto as Exhibit I).
Code shall mean the Internal Revenue Code of 1986, as amended.
Common Stock shall mean (a) all classes of the common stock of the
Company, (b) any other Capital Stock of the Company, however designated,
authorized on or after the date hereof, which shall neither be limited to a
fixed sum or percentage of par value in respect of the rights of the holders
thereof to participate in dividends nor entitled to a preference in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company and (c) any other securities into which
or for which any of the securities described in clause (a) or (b) may be
converted or exchanged pursuant to a plan of recapitalization, reorganization,
merger, consolidation, sale of assets or other similar transaction.
Commission shall mean the Securities and Exchange Commission or any other
federal agency then administering the Securities Act.
Company shall have the meaning set forth in the Preamble hereof.
Company Affiliate shall mean an Affiliate of the Company.
Company Intellectual Property shall mean all Intellectual Property that is
owned or held by or on behalf of the Company or that is being, or has been,
used, or is currently under development for use, in the business of the Company
as it has been, is currently or is currently planned to be conducted.
Competitor shall mean a Person conducting operations or providing
services, directly or indirectly, alone, in association with or as a
shareholder, principal, agent, partner, officer, director, employee or
consultant of any other organization, in the business of designing, developing
and manufacturing ruggedized(TM) IT hardware including, but not limited to,
computers, workstations, VME chassis/enclosures (Versa Module Europa bus) and
peripherals including disk drives, keyboards, monitors printers, tape drives,
trackballs and custom designed devices.
Debt as to any Person at any time, shall mean: (a) all indebtedness,
liabilities and obligations of such Person for borrowed money; (b) all
indebtedness, liabilities and obligations of such Person to pay the deferred
purchase price of Property or services, except trade accounts payable of such
Person arising in the ordinary course of business that are (i) not past due by
more than 90 days or (ii) being disputed in good faith by the Company; (c) all
capital lease obligations of such Person; (d) all indebtedness, liabilities and
obligations of others guaranteed by such Person; (e) all indebtedness,
liabilities and obligations secured by a Lien existing on Property owned by such
Person, whether or not the indebtedness, liabilities or obligations secured
thereby have been assumed by such Person or are non recourse to such Person; (f)
all reimbursement obligations of such Person (whether contingent or otherwise)
in respect of letters of credit, bankers' acceptances, surety or other bonds and
similar instruments; and (g) all indebtedness, liabilities and obligations of
such Person to redeem or retire shares of capital stock of such Person.
3
Disclosure Documents shall mean all SEC Documents filed by the Company at
least three (3) Business Days prior to the Execution Date via the Commission's
Electronic Data Gathering, Analysis and Retrieval System (EDGAR) in accordance
with the requirements of the Exchange Act.
DMTR means DMTR, LLC, a Delaware limited liability company.
DTC shall have the meaning set forth in Section 6.10
ERISA shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.
Exchange Act shall mean the Securities Exchange Act of 1934, as amended
from time to time.
Exercise Price shall have the meaning set forth in the Warrant.
Execution Date shall have meaning specified in the Preamble hereof.
GAAP shall mean generally accepted accounting principles of the United
States of America, consistently applied.
Governmental Authority shall mean any nation or government, any state,
provincial or political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, including without limitation any stock exchange, securities
market or self-regulatory organization.
Governmental Requirement shall mean any law, statute, code, ordinance,
order, rule, regulation, judgment, decree, injunction, franchise, license or
other directive or requirement of any federal, state, county, municipal, parish,
provincial or other Governmental Authority or any department, commission, board,
court, agency or any other instrumentality of any of them.
Intellectual Property shall mean all tangible or intangible proprietary
information and materials, including without limitation:
(a) (i) all inventions (whether patentable or unpatentable and whether
or not reduced to practice), all improvements thereon, and all
patents, patent applications and patent disclosures, together with
all resistances, continuations, continuations-in-part, divisions,
revisions, extensions and re-examinations thereof, (ii) all
trademarks, service marks, trade dress, logos, trade names, domain
names, and corporate names, together with all translations,
adaptations, derivations and combinations thereof and including all
goodwill associated therewith, and all applications, registrations
and renewals in connection therewith, (iii) all works of authorship
and copyrights and all applications, registrations and renewals in
connection therewith, (iv) all mask works and all applications,
registrations and renewals in connection therewith, (v) all trade
secrets and confidential business information (including ideas,
research and development, know-how, formulas, compositions,
manufacturing and production process and techniques, methods,
schematics, technology, technical data, designs, drawings,
flowcharts, block diagrams, specifications, customer and supplier
lists, pricing and cost information and business and marketing plans
and proposals), (vi) all software and firmware (including data,
databases and related documentation) and (vii) all rights
appurtenant to any of the foregoing;
4
(b) all documents, records and files relating to, and tangible
embodiments of, all intellectual property described in clause (a)
above; and
(c) all licenses, agreements and other rights in any third party product
or any third party intellectual property described in clause (a)
above, other than any "off the shelf' third party software or
related intellectual property.
Initial Closing shall have the meaning set forth in Section 3.1(a).
Initial Closing Date shall have the meaning set forth in Section 3.1(a).
Investment Documents shall mean this Agreement, the Warrant, the
Registration Rights Agreement, the Bridge Note, the Secured Note and all other
documents executed in connection with the Restructuring or any the foregoing,
under which, upon execution thereof, the Company or any Related Party shall have
any obligation to Purchaser, all in the respective forms thereof as executed and
as amended from time to time.
Investment shall have the meaning set forth in the Recitals hereof.
Investment Company Act has the meaning specified in Section 4.30 hereof.
Key Employees shall mean each executive-level employee as well as each
employee whose annual salary equals or exceeds $100,000.
Lien shall mean with respect to any Property, any mortgage or mortgages,
pledge, hypothecation, assignment, deposit arrangement, security interest, tax
lien, financing statement, pledge, charge, or other lien, charge, easement,
encumbrance, preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever on or with respect to such Property
(including, without limitation, any conditional sale or other title retention
agreement having substantially the same economic effect as any of the
foregoing).
Majority Stockholder Consent shall have the meaning specified in Section
7.3 hereof.
Material Adverse Effect shall mean any change, occurrence or event that
has had or could reasonably be expected to have a material adverse effect on the
business, properties, operations, prospects, assets, liabilities or condition
(financial or otherwise) or operating results of the Company and its
Subsidiaries, if any, taken as a whole.
Material Contracts shall mean, as to the Company, any agreement required
pursuant to Item 601 of Regulation S-B or Item 601 of Regulation S-K, as
applicable, under the Securities Act to be filed as an exhibit to any report,
schedule, registration statement or definitive proxy statement filed or required
to be filed by the Company with the Commission under the Exchange Act or any
rule or regulation promulgated thereunder, and any and all amendments,
modifications, supplements, renewals or restatements thereof.
NASD shall mean the National Association of Securities Dealers, Inc.
Notes shall have the meaning specified in the Preamble hereof.
5
Pari Passu Securities shall mean any securities ranking by their terms
pari passu with the Preferred Stock in respect of payment of dividends,
redemption or distribution upon liquidation.
Permitted Debt shall mean the following:
(a) the Bridge Note;
(b) the Secured Note;
(c) Debt that is outstanding on the Execution Date as disclosed on
Schedule II hereto;
(d) Debt consisting of a working capital credit facility provided by a
bank or other financial institution that is secured only by the Company's
accounts receivable and/or inventory; and
(e) Debt consisting of capitalized lease obligations and purchase money
indebtedness incurred in connection with acquisition of capital assets and
obligations under sale-leaseback or similar arrangements provided in each case
that such obligations are not secured by Liens on any assets of the Company or
its Subsidiaries other than the assets so leased.
Permitted Lien shall mean (i) liens securing the payment of taxes, and
other government charges, either not yet due or the validity of which is being
contested in good faith by appropriate proceedings, (ii) restrictions,
easements, and minor irregularities in title which do not and will not interfere
with the occupation, use and enjoyment of the properties of the Company in the
normal course of business as presently conducted or materially impair the value
of such assets for the purpose of such business, (iii) liens imposed by laws,
such as mechanics', materialmen's, landlords', warehousemen's, and carriers'
liens and other similar liens, securing obligations incurred in the ordinary
course of business which are not past due for more than sixty (60) days or which
are being contested in good faith by appropriate proceedings and for which
appropriate reserves have been established, (iv) liens, deposits or pledges to
secure the performance of bids, tenders, contracts (other than contracts for the
payment of indebtedness), leases (to the extent permitted under the terms of
this Agreement), public or statutory obligations, surety, stay, appeal,
indemnity, performance or other similar bonds, or other similar obligations
arising in the ordinary course of business, (v) the UCC-1 financing statements
securing the Bridge Note, and (vi) the UCC-1 financing statements to be filed to
secure the Secured Note.
Person shall mean any individual, corporation, limited liability company,
association, partnership, limited partnership, trust or estate, or government
(or any agency or political subdivision thereof), or any other entity.
Preferred Shares shall have the meaning set forth in the Recitals hereto.
Preferred Stock shall mean (a) the Series B Preferred Stock, (b) all other
classes and series of the preferred stock of the Company, (c) any other Capital
Stock of the Company, however designated, authorized on or after the date
hereof, which shall be limited to a fixed sum or percentage of par value in
respect of the rights of the holders thereof to participate in dividends or
entitled to a preference in the distribution of assets upon the voluntary or
involuntary liquidation, dissolution or winding up of the Company and (d) any
other securities into which or for which any of the securities described in
clause (a), (b) or (c) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, consolidation, sale of assets or other
similar transaction.
6
Property shall mean property and/or assets of all kinds, whether real,
personal or mixed, tangible or intangible (including, without limitation, all
rights relating thereto).
Publicly Available Software shall mean each of (a) any software that
contains, or is derived in any manner (in whole or in part) from, any software
that is distributed as free software, open source software (e.g. Linux), or
pursuant to similar licensing and distribution models, and (b) any software that
requires as a condition of use, modification, or distribution of such software
that such software or other software incorporated into, derived from, or
distributed with such software (i) be disclosed or distributed in source code
form, (ii) be licensed for the purpose of making derivative works, or (iii) be
redistributable at no or minimal charge.
Registration Rights Agreement has the meaning specified in the Recitals
hereof.
Registrable Securities shall have the meaning set forth in the
Registration Rights Agreement.
Related Party shall mean (i) any officer, director or Key Employee of the
Company, (ii) any holder of five percent (5%) or more of any class of Capital
Stock of the Company, (iii) any member of the immediate family of any such
officer, director, employee or shareholder or (iv) any entity controlled by any
such officer, director, employee or shareholder or a member of the immediate
family of any such officer, director, employee or shareholder.
Reserved Amount shall have the meaning specified in Section 6.3 hereof.
Restated Certificate of Incorporations shall mean the Restated Certificate
of Incorporation of the Company as filed with the Delaware Secretary of State on
April 15, 1987 and as amended to date.
Restructuring shall have the meaning specified in the Recitals hereof.
Rule 144 means Rule 144 under the Securities Act, or any successor
provision.
SEC Documents shall have the meaning specified in Section 4.5 hereof.
Secured Note shall have the meaning set forth in the Preamble hereof and
be in the form attached hereto as Exhibit VII.
Securities shall mean the Preferred Shares, the Warrant and the Warrant
Shares collectively.
Securities Act shall mean the Securities Act of 1933, as amended from time
to time.
Senior Securities shall mean (i) any Debt issued or assumed by the Company
and (ii) any securities of the Company which by their terms have a preference
over the Series B Preferred Stock in respect of payment of dividends, redemption
or distribution upon liquidation.
Series B Preferred Stock shall mean the Series B Preferred Stock of the
Company.
Shares shall mean all shares of Capital Stock of the Company held by
Purchaser, including, without limitation, all Preferred Shares and Warrant
Shares.
Stock Plan shall have the meaning set forth in Section 4.6(b).
7
Subsequent Placement shall mean the issuance, sale, exchange, or agreement
or obligation to issue, sell or exchange or reserve, or agreement to or set
aside for issuance, sale or exchange, (i) any shares of Common Stock, (ii) any
other equity security of the Company, including without limitation shares of
preferred stock, (iii) any other security of the Company which by its terms is
convertible into or exchangeable or exercisable for any equity security of the
Company, or (iv) any option, warrant or other right to subscribe for, purchase
or otherwise acquire any such security described in the foregoing clauses (i)
through (iii).
Subsidiary shall mean, with respect to the Company, any corporation or
other entity of which at least a majority of the outstanding shares of stock or
other ownership interests having by the terms thereof ordinary voting power to
elect a majority of the board of directors (or Persons performing similar
functions) of such corporation or entity (irrespective of whether or not at the
time, in the case of a corporation, stock of any other class or classes of such
corporation shall have or might have voting power by reason of the happening of
any contingency) is at the time directly or indirectly owned or controlled by
the Company or one or more of its Subsidiaries or by the Company and one or more
of its Subsidiaries.
Termination Date shall mean the date on which there are no Warrant
outstanding.
Warrant shall have the meaning set forth in the Preamble hereto.
Warrant Shares shall mean, at any time, shares of Common Stock (i) issued
and then outstanding upon exercise of the Warrant and (ii) issued and then
outstanding or issuable in respect of the Common Stock referred to in clauses
(i) of this definition upon any stock split, stock dividend, recapitalization or
similar event.
SECTION 2.
AUTHORIZATION: PURCHASE AND SALE
2.1. Authorization. The Company has authorized (i) the issuance of the
Preferred Shares to Purchaser, such shares having the designation, powers,
preferences and relative, participating, optional and other special rights, and
the qualifications, limitations and restrictions set forth in the Certificate of
Designations, and (ii) the issuance of the Warrant to Purchaser.
2.2. Sale and Purchase of the Preferred Shares and the Warrant.
(a) The Company shall adopt and file with the Secretary of State of the
State of Delaware on or before the Initial Closing (as defined below) the
Certificate of Designations in the form attached hereto as Exhibit I.
(b) Subject to the terms and conditions of this Agreement and in reliance
upon the representations, warranties and agreements contained herein, the
Company hereby (i) agrees to issue and sell to Purchaser, and Purchaser hereby
agrees to purchase, at a price per share of $1.00, from the Company at the
Initial Closing (as defined below), that number of Preferred Shares, as is set
forth opposite the name of Purchaser on Schedule I (a) and (ii) agrees to issue
and sell to Purchaser and Purchaser hereby purchases from the Company at the
Initial Closing, a Warrant to purchase such number of Warrant Shares as is set
forth and described opposite Purchaser's name on Schedule I (a). The purchase
price of the Preferred Shares and the Warrant being purchased by Purchaser is
set forth opposite its name on such Schedule I (a).
8
(c) Subject to the terms and conditions of this Agreement and in reliance
upon the representations, warranties and agreements contained herein, the
Company hereby (i) agrees to issue and sell to Purchaser, and Purchaser hereby
agrees to purchase from the Company at the Additional Closings (as defined
below), that number of Preferred Shares as is set forth opposite the name of
Purchaser on Schedule I (b). The purchase price of the Preferred Shares being
purchased by Purchaser is set forth opposite its name on such Schedule I (b).
SECTION 3.
CLOSING, PAYMENT AND DELIVERY
3.1. Initial Closing Date. The initial closing of the purchase and sale of
the Preferred Shares and Warrant hereunder in the amounts set forth in Section
2.2(b) hereof (the "Initial Closing") shall take place remotely via the exchange
of documents and signatures, on such place and time as shall have been agreed to
by the Company and Purchaser. The Initial Closing will be deemed to occur when
(A) this Agreement and the other Investment Documents have been executed and
delivered by the Company and by Purchaser, (B) each of the conditions to the
Initial Closing described in Sections 6 and 7 hereof has been satisfied or
waived by the Company or Purchaser, as appropriate, (C) Purchaser will pay the
purchase price therefor to the Company by (i) canceling and delivering the Notes
to the Company and (ii) allocating part of the interests due on the Notes to the
purchase price to attain the amount set forth in Schedule 1(a) (the balance of
the remaining accrued interests due on the Notes will remain due and payable by
the Company), and (D) the Company shall have delivered duly executed
certificates representing the Preferred Shares and the Warrant being purchased
by Purchaser. The Date on which the Initial Closing occurs is referred to herein
as the "Initial Closing Date." 3.2. Additional Closing Date. The additional
closings for the purchase and sale of the Preferred Shares in the amounts set
forth in Section 2.2(c) hereof (each, an "Additional Closing") shall take place
remotely via the exchange of documents and signatures, on such place and time as
shall have been agreed to by the Company and Purchaser. Each Additional Closing
will be deemed to occur when (A) each of the conditions to the Additional
Closings described in Section 9 has been satisfied or waived by the Company or
Purchaser, as appropriate, (B) Purchaser will pay the purchase price therefor to
the Company by wire transfer of funds to the account of the Company, and (C) the
Company shall have delivered duly executed certificates representing the
Preferred Shares being purchased by Purchaser. The Date on which an Additional
Closing occurs is referred to herein as an "Additional Closing Date."
SECTION 4.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as expressly set forth on Schedule II, the Company hereby makes the
following representations and warranties to Purchaser. Schedule II shall be
arranged in sections corresponding to the numbered and lettered sections and
subsections contained in this Section 4, and any exceptions or disclosures in
any section or subsection in Schedule II shall qualify other sections and
subsections of this Section 4 only to the extent that it is readily apparent
from a reading of such exception or disclosure that such exception or disclosure
is applicable to such other sections and subsections.
9
4.1. Organization and Standing; Amended Certificate and Bylaws.
(a) The Company was incorporated under the laws of the State of Delaware
on September 5, 1980.
(b) Except for approximately $68,000 of late franchise tax for 2003 and
2004 due by the Company to the Secretary of State of the State of Delaware, each
of the Company and each of its Subsidiaries is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation or
organization and has all requisite power to own the properties owned by it and
to conduct the business as it is being conducted by it. Each of the Company and
each of its Subsidiaries is duly qualified and registered to do business in and
is in good standing in every state in which the Property owned by it or the
nature of its activities requires that it be so qualified and registered, except
where the failure to be so qualified or registered would not reasonably be
expect to have a Material Adverse Effect.
(c) The Company has made available to Purchaser true, correct and complete
copies of the Restated Certificate of Incorporation and Bylaws of the Company,
and all amendments thereto through and including the Initial Closing Date and
copies of the minutes of all Board of Directors, Committees of the Board, and
shareholder meetings of the Company.
4.2. Subsidiaries. The Subsidiaries are set forth in Schedule II. Except
as otherwise set forth on Schedule II, the Company does not own of record or
beneficially any Capital Stock or equity interest or investment in any other
corporation, partnership, association or business entity, and, except as
otherwise stated, each of the representations and warranties set forth in this
Section 4 is also made by the Company with respect to each such Subsidiary as if
such Subsidiary were the "Company" and Schedule II shall apply to each such
Subsidiary in the same manner as if such subsidiary were the "Company."
4.3. Corporate Power. The Company has the requisite corporate power and
authority to adopt and file the Certificate of Designations and perform its
obligations thereunder and to enter into this Agreement and the other Investment
Documents. The Company has the requisite corporate power and authority to sell
and issue the Preferred Shares and Warrant in accordance with the terms hereof
and thereof and to issue the Warrant Shares upon exercise of the Warrant. All
corporate action on the part of the Company by its officers, directors and
stockholders necessary for the authorization, execution and delivery of, and the
performance by the Company of its obligations under this Agreement and the other
Investment Documents, and for the adoption and filing of the Certificate
Designations, has been taken prior to the Initial Closing and no further consent
or authorization of the Company, its Board of Directors, stockholders, any
Governmental Authority or organization (other than (i) such approval as may be
required under the Securities Act and applicable state securities laws in
respect of the Registration Rights Agreement, (ii) the filing of a Form D with
the Commission and any applicable state securities departments as provided in
Section 6.1 hereof, and (iii) the notification to the NASD of the offering of
the Securities), or any other person or entity is required. The Board of
Directors has determined, at a duly convened meeting or pursuant to a unanimous
written consent, that the issuance and sale of the Securities, and the
consummation of the transactions contemplated by this Agreement and the other
Investment Documents (including without limitation the issuance of the Warrant
Shares in accordance with the terms of the Warrant), are in the best interests
of the Company. The Company does not have any shareholder rights plan, "poison
pill" or other anti-takeover plans or similar anti-takeover arrangements or
provisions under its Amended Certificate or Bylaws. The Majority Stockholder
Consent (i) has been duly executed and delivered to the Company by holders of
securities of the Company representing a majority of the voting power of the
Company's outstanding securities, (ii) constitutes the valid and binding action
of the stockholders of the Company, subject only to the compliance by the
Company with the provisions of Regulation 14C under the Exchange Act, and (iii)
has not been amended or superseded.
10
4.4. Authorization.
(a) This Agreement and the other Investment Documents are each a valid and
binding obligation of the Company, enforceable in accordance with their
respective terms, subject to (i) applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws, now or hereafter in effect, relating
to or affecting the rights, powers, privileges, remedies or interests of
creditors generally, (ii) rules or principles of equity affecting enforcement of
obligations generally, whether at law, in equity or otherwise or (iii) the
exercise of the discretionary powers of any court or other authority before
which a proceeding may be brought seeking equitable remedies, including, without
limitation, specific performance and injunctive relief. The execution and
delivery by the Company of this Agreement and the other Investment Documents and
compliance herewith and therewith, and the issuance and sale of Securities will
not with or without notice or the passage of time or both result in any
violation of and will not conflict with, or result in a breach of any of the
terms of, or constitute a default under any provision of, any Governmental
Requirement applicable to the Company or any of its Subsidiaries, the Company's
Restated Certificate of Incorporation (both before and after giving effect to
the Certificate of Designations) or Bylaws, as amended, or any mortgage,
indenture, agreement, instrument, judgment, decree, order, rule or regulation or
other restriction to which the Company is a party or by which it or any of its
Property is bound, or may be affected, or result in the creation of Lien upon
any of the Properties or assets of the Company pursuant to any such term or give
to any other Person the right to accelerate the time for performance of any
obligation of the Company, which in any case will have a Material Adverse
Effect. No shareholder has any preemptive rights or rights of first refusal by
reason of or in connection with the issuance of Securities.
(b) The issuance, sale and delivery of the Preferred Shares by the Company
have been duly authorized by all requisite corporate action of the Company, and
when so issued, sold and delivered and paid for as contemplated by this
Agreement, each Preferred Share will be validly issued and outstanding, fully
paid and nonassessable, free and clear of any Liens imposed by or through the
Company.
(c) The issuance, sale and delivery by the Company of the Warrant have
been duly authorized by all requisite corporate action of the Company, and when
so issued, sold and delivered and paid for as contemplated by this Agreement,
the Warrant will be validly issued and outstanding, fully paid and
nonassessable, free and clear of any Liens imposed by or through the Company.
11
(d) The issuance, sale and delivery by the Company of the Warrant Shares
have been duly authorized by all requisite corporate action of the Company. The
Warrant Shares have been duly reserved for issuance upon exercise of the
Warrant, and when so issued, sold and delivered in accordance with the terms of
the Warrant, the Warrant Shares will be validly issued and outstanding, fully
paid and nonassessable, free and clear of any Liens imposed by or through the
Company.
4.5. SEC Documents; Agreements; Financial Statements; Other Information.
The Company is subject to the reporting requirements of the Exchange Act and,
except as disclosed on Schedule II, has timely filed (subject to any permitted
extensions for which the Company has timely filed) with the Commission all
reports, schedules, registration statements and definitive proxy statements that
the Company was required to file with the Commission on or after December 31,
2003 (collectively, the "SEC Documents"). The Company is not aware of any event
occurring or expected to occur on or prior to the Initial Closing Date (other
than the transactions effected hereby) that would require the filing of, or with
respect to which the Company intends to file, a Current Report on Form 8-K after
the Initial Closing. Each SEC Document, as of the date of the filing thereof
with the Commission, complied in all material respects with the requirements of
the Securities Act or Exchange Act, as applicable, and the rules and regulations
promulgated thereunder and, as of the date of such filing (or if amended or
superseded by a filing prior to the Execution Date, then on the date of such
amending or superseding filing), such SEC Document (including all exhibits and
schedules thereto and documents incorporated by reference therein) did not
contain an untrue statement of material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. Except as
described on Schedule II, all documents required to be filed as exhibits to the
SEC Documents have been filed as required. Except as set forth on Schedule II,
the Company has no liabilities, contingent or otherwise, other than liabilities
incurred in the ordinary course of business which, under GAAP, are not required
to be reflected in the financial statements included in the SEC Documents and
which, individually or in the aggregate, are not material to the consolidated
business or financial condition of the Company and its Subsidiaries taken as a
whole. The financial statements included in the SEC Documents complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the Commission with respect thereto. The
financial statements included in the SEC Documents have been prepared in
accordance with GAAP consistently applied at the times and during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto, or (ii) in the case of unaudited interim statements, to
the extent they may exclude footnotes or may be condensed or summary statements)
and fairly present in all material respects the financial position of the
Company as of the dates thereof and the results of its operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end adjustments).
4.6. Capitalization.
12
(a) Exhibit III contains a true and correct list of all Capital Stock and
securities (including outstanding warrants, options, agreements, convertible
securities or other commitments to which the Company is or may become obligated
to issue any shares of its Capital Stock or other securities) of the Company
(including the amounts thereof) outstanding immediately prior to the Initial
Closing, and the holders of any interest in such Capital Stock and securities.
Upon the Initial Closing, the Company's authorized Capital Stock will consist of
(i) 800,000,000 shares of Common Stock, of $0.01 par value each, of which
32,631,486 shares will be issued and outstanding on the date hereof and
386,314,860 shares will be reserved for issuance upon execution of the Warrant;
(ii) 40,000,000 of preferred stock, of which 1,500,000 shall be shares of Series
B Preferred Stock, of $0.001 par value each, of which upon the Initial Closing,
500,000 will be issued and outstanding. Upon consummation of the Initial
Closing, all issued and outstanding shares of Capital Stock of the Company will
have been duly authorized and validly issued, will be fully paid and
nonassessable, will be owned of record and to the knowledge of the Company
beneficially by the shareholders and in the amounts set forth in Exhibit III
and, assuming the accuracy of the representations and warranties of Purchaser in
Section 5 of this Agreement, will have been offered, issued, sold and delivered
by the Company in compliance with applicable federal and state securities laws.
Except as set forth in Schedule II, immediately prior to the Initial Closing
there were, and upon the Initial Closing there will be, no preemptive or similar
rights to purchase or otherwise acquire shares of Capital Stock of the Company
pursuant to any provision of law, the Restated Certificate of Incorporation,
Certificate of Designations or Bylaws of the Company, or any agreement to which
the Company is a party, or to the Company's knowledge otherwise; there was, and
upon the Initial Closing there will be, no agreement, restriction or encumbrance
to which the Company is a party with respect to the sale or voting of any shares
of the Company's Capital Stock (whether outstanding or issuable upon conversion
or exercise or outstanding securities), except as contemplated by this
Agreement, the Amended Certificate and the Investment Documents. To the
Company's knowledge, no holder of Common Stock has granted any option or other
right to purchase from such shareholder any interest in any share of Common
Stock. The Company does not hold any shares of its Capital Stock in its
treasury.
(b) The Company has reserved 60,000,000 shares of Common Stock for
issuance to officers, directors, employees and consultants of the Company
pursuant to its 2005 Stock Incentive Plan duly adopted by the Board of Directors
and approved by the Company stockholders (the "Stock Plan"). Of such reserved
shares of Common Stock, except as set forth in Schedule II, no shares have been
issued pursuant to restricted stock purchase agreements, no options to purchase
any shares have been granted and are currently outstanding, and 60,000,000
shares of Common Stock remain available for issuance to officers, directors,
employees and consultants pursuant to the Stock Plan.
4.7. Contracts.
(a) Schedule II sets forth a true and correct list of all Material
Contracts.
(b) A copy of each of the Material Contracts has been made available to
Purchaser. No event has occurred and no condition exists which with notice or
the passage of time or both would constitute a material default under any such
Material Contract. To the Company's knowledge, no party to any such Material
Contract has threatened to terminate or has any intentions of terminating its
obligations thereunder.
4.8. Financial Information/Taxes.
13
(a) The financial condition of the Company and each of its Subsidiaries
is, in all material respects, as described in the Disclosure Documents, except
for changes in the ordinary course of business and normal year-end adjustments
that are not, in the aggregate, materially adverse to the consolidated business
or financial condition of the Company and its Subsidiaries taken as a whole.
Except as otherwise described on Schedule II, since October 31st, 2005, there
has occurred no (i) material adverse change to the Company's business,
operations, properties, financial condition, or results of operations or (ii)
change by the Company in its accounting principles, policies and methods except
as required by changes in GAAP or applicable law.
(b) The Company and each of its Subsidiaries (i) have prepared in good
faith and duly and timely filed (subject to any extensions for which the Company
or its Subsidiary (as the case my be) has timely filed) all tax returns required
to be filed by it and such returns are complete and accurate in all material
respects and (ii) have paid all taxes required to have been paid by it, except
for taxes which it reasonably disputes in good faith or the failure of which to
pay has not had or would not reasonably be expected to have a Material Adverse
Effect. Neither the Company nor any of its Subsidiaries has any liability with
respect to accrued taxes in excess of the amounts that are described as accrued
in the Disclosure Documents.
(c) Except as described on Schedule II, neither the Company nor any of its
Subsidiaries is the subject of any pending or, to the Company's knowledge,
threatened inquiry, investigation or administrative or legal proceeding by the
Internal Revenue Service, the taxing authorities of any state or local
jurisdiction, the Commission, any state securities commission or other
Governmental Authority. (d) There are no Liens on the assets of the Company for
unpaid taxes, except for Liens relating to taxes that are not yet due and
payable.
(e) The Company has established adequate reserves for all taxes accrued
but not yet payable to the extent required by GAAP.
(f) The Company (i) is not a party to or bound by any tax allocation or
tax sharing agreement or has any current or potential obligation to indemnify
any other Person with respect to taxes; (ii) is not required to make any
adjustments under Section 481(a) of the Code by reason of a change in accounting
method which affects any taxable year ending after the Closing Date, or has any
application pending to effect such a change of accounting method; and (iii) is
not obligated to make any payments and is not a party to any agreement that
could make it obligated to make payments, which will not be deductible under
Section 280G of the Code.
(g) Consummation of the transactions contemplated by this Agreement, the
Investment Documents or by any other agreement, understanding or commitment
(contingent or otherwise) to which the Company is a party or by which it is
otherwise bound will not have the effect of limiting the Company's ability to
use any net operating losses in full to offset any taxable income it may have.
(h) Except as may be disclosed in the Disclosure Documents, the Company is
not a guarantor or indemnitor of any indebtedness of any other Person.
14
(i) To the Company's knowledge, there is no liability of any tax to be
imposed upon its Properties or assets as of the Execution Date that is not
adequately provided for.
For purposes of this Section, "tax" or "taxes" refers to any and all
federal, state, local and foreign taxes, assessments and other governmental
charges, duties, impositions and liabilities relating to taxes, including taxes
based upon or measured by gross receipts, income, profits, sales, use and
occupation, and value added, ad valorem, transfer, franchise, withholding,
payroll, recapture, employment, excise and property taxes, together with all
interest, penalties and additions imposed with respect to such amounts and any
obligations under any agreements or arrangements with any other Person with
respect to such amounts and including any liability for taxes of a predecessor
entity.
4.9. Absence of Certain Changes. Except as provided in Schedule II and
except for transactions in the ordinary course of business, since October 31st,
2005, the Company has not:
(a) issued any stock, bonds or other corporate securities or any rights,
options or warrants with respect thereto;
(b) borrowed any amount or incurred or become subject to any liabilities
(absolute or contingent) except current liabilities incurred in the ordinary
course of business which are comparable in nature and amount to the current
liabilities incurred in the ordinary course of business since inception;
(c) discharged or satisfied any lien or encumbrance or paid any obligation
or liability (absolute or contingent), other than current liabilities paid in
the ordinary course of business;
(d) declared or made any payment or distribution of cash or other Property
to stockholders with respect to its Capital Stock, or purchased or redeemed, or
made any agreements so to purchase or redeem, any shares of its Capital Stock;
(e) mortgaged or pledged any of its assets, tangible or intangible, or
subjected them to any liens, charge or other encumbrance, except for Permitted
Liens;
(f) sold, assigned or transferred any other tangible assets, or canceled
any debts or claims, except in the ordinary course of business;
(g) sold, assigned or transferred any of the Company Intellectual
Property, or disclosed any proprietary confidential information to any Persons
except in the ordinary course of business or, with respect to any disclosure of
any Company Intellectual Property, pursuant to a non-disclosure agreement;
(h) suffered any substantial losses, or compromised or waived any rights
of material value or any material debt owed to the Company, whether or not in
the ordinary course of business, or suffered the loss of any material amount of
prospective business;
(i) made any changes in employee compensation except in the ordinary
course of business and consistent with past practices;
15
(j) made capital expenditures or commitments therefor that aggregate in
excess of $10,000;
(k) made charitable contributions or pledges;
(l) suffered any material damage, destruction or casualty loss, whether or
not covered by insurance;
(m) experienced any material problems with labor or management in
connection with the terms and conditions of their employment;
(n) experienced any change in the condition, assets, liabilities,
prospects or business of the Company from that shown on the Disclosure
Documents, either individually or in the aggregate, that had or could reasonably
be expected to have a Material Adverse Effect;
(o) suffered any loss of, or material order cancellation by, any customer
of the Company that could reasonably be expected to result in a Material Adverse
Effect;
(p) had any customer or supplier of the Company materially reduce or
threatened to terminate or materially reduce its purchases from, or provision of
products or services to, the Company, as the case may be;
(q) became aware of any other event or condition of any character, other
than events affecting the economy or the Company's industry generally, that
could reasonably be expected to result in a Material Adverse Effect;
(r) had any resignation or termination of employment of any officer or any
other Key Employee of the Company;
(s) made any loans or guarantees to or for the benefit of any Related
Party or Company Affiliate, other than travel advances and other advances made
in the ordinary course of its business;
(t) entered into any other material transaction other than in the ordinary
course of business, or entered into any other material transaction, whether or
not in the ordinary course of business; or
(u) effected any two or more events of the foregoing kind, which in the
aggregate would have a Material Adverse Effect on the Company.
4.10. Litigation. Except as provided in Schedule II, there are neither
pending nor to the Company's knowledge threatened any actions, suits, claims,
investigations or legal or administrative or arbitration proceedings, whether or
not purportedly on behalf of the Company or any of its Subsidiaries, to which
the Company is or may be named as a party or to which the Company's Property is
or may be subject, whether at law or in equity, whether civil or criminal in
nature or whether before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign. To the best of the Company's knowledge, there is no basis
for any such actions, suits, claims, investigations or legal or administrative
or arbitration proceedings, in which an unfavorable outcome, ruling or finding
in any such matter or for more than one of such matters, taken together, could
be reasonably expected to have a Material Adverse Effect. The Company has no
knowledge of any unasserted claim against it, the assertion of which is likely
and which, if asserted, will seek damages, an injunction or other legal,
equitable, monetary or nonmonetary relief which if granted could reasonably be
expected to have a Material Adverse Effect. There are no orders, judgments, or
decrees of any court or governmental agency, which, to the best knowledge of the
Company, apply to it.
16
4.11. Title to Properties; Liens and Encumbrances. Schedule II sets forth
all real property owned by the Company or any of its subsidiaries. The Company
and its subsidiaries have good and marketable title to all personal Property and
good and marketable title in fee simple to all real Property owned by them, in
each case free and clear of any Liens, except Permitted Liens.
4.12. Leases. Set forth in Schedule II is a correct and complete list of
all leases (including, with respect to each lease, the material provisions of
such lease, including the term, the amount of rent called for and a description
of the leased Property) under which the Company or any of its Subsidiaries is a
lessee other than leases of personal Property requiring rental payments of less
than $5,000 per year. The Company and its Subsidiaries enjoy peaceful and
undisturbed possession under all such leases, all of such leases are valid and
subsisting and, to the Company's knowledge, none of them are in default in any
respect, and to the Company's knowledge no event has occurred and no condition
exists which with notice or the passage of time or both would constitute such a
default.
4.13. Acknowledgement of Dilution. The Company acknowledges that the
issuance of the Warrant Shares upon exercise of the Warrant may result in
dilution of the outstanding shares of Common Stock, which dilution may be
substantial under certain market conditions. The Company further acknowledges
that its obligation to issue the Warrant Shares in accordance with the terms of
the Warrant is unconditional regardless of the effect of any such dilution.
4.14. Intellectual Property.
(a) Schedule II lists (i) all of the Company Intellectual Property (other
than trade secrets and confidential business information) and (ii) all licenses
(in and out), sublicenses and other agreements to which the Company is a party
and pursuant to which the Company or any other Person is authorized to use any
of the Company Intellectual Property or exercise any rights with respect thereto
(other than licenses arising from the purchase of "off the shelf' or other
standard products which need not be listed on Schedule II).
(b) Each item of Company Intellectual Property is either (i) owned solely
by the Company free and clear of any Liens except for Permitted Liens or (ii)
rightfully used and authorized for use by the Company pursuant to a valid and
enforceable written license. All of the Company Intellectual Property that is
used by the Company pursuant to a license or other grant of a right by a third
party to use its proprietary information is separately identified as such in
Schedule II. The Company has all rights in the Company Intellectual Property
necessary to carry out the Company's current and currently planned future
activities, including without limitation (except as disclosed in Schedule II)
rights to make, use, reproduce, modify, adapt, create derivative works based on,
translate, distribute (directly and indirectly), transmit, display and perform
publicly, license, rent, lease, assign and sell the Company's products and
services in all geographic locations and fields of use in which the Company is
currently operating or currently plans to sell such products and services, and
to sublicense any or all such rights to third parties, including the right to
grant further sublicenses.
17
(c) The Company is not in violation of any license, sublicense or other
agreement to which the Company is a party or otherwise bound relating to any of
the Company Intellectual Property, except as would not have a Material Adverse
Effect.
(d) Except as disclosed in Schedule II, the Company is not obligated to
provide any consideration (whether financial or otherwise) to any Person, nor is
any Person otherwise entitled to any consideration, with respect to any exercise
of rights by the Company in the Company Intellectual Property.
(e) The use of the Company Intellectual Property by the Company as
currently used and as currently proposed to be used does not, to the knowledge
of the Company, infringe any other Person's patent, trademark, service mark,
trade name, firm name, logo, trade dress, mask work, copyright, trade secret
rights, right of privacy, right in personal data, moral right or other
intellectual property right. No claims (i) challenging the validity,
enforceability, effectiveness or ownership by the Company of any of the Company
Intellectual Property or (ii) to the effect that the use, reproduction,
modification, manufacture, distribution, licensing, sublicensing, sale, or any
other exercise of rights in any Company Intellectual Property by the Company,
infringes or will infringe on any intellectual property or other proprietary or
personal right of any Person have been asserted against the Company or, to the
Company's knowledge, are threatened by any Person nor, to the Company's
knowledge, does there exist any valid basis for such a claim. There are no legal
or governmental proceedings, including interference, re-examination, reissue,
opposition, nullity, or cancellation proceedings pending that relate to any of
the Company Intellectual Property, other than review of pending patent
applications, and the Company is not aware of any information indicating that
such proceedings are threatened or contemplated by any governmental entity or
any other Person. None of the Company's (1) granted or issued patents, (2)
registered trademarks or service marks, or (3) copyright registrations have been
challenged by any third party, and each such patent, mask work, trademark,
service mark and copyright is subsisting. To the Company's knowledge, there is
no unauthorized use, infringement, or misappropriation of any of Company
Intellectual Property by any third party, employee or former employee.
(f) All personnel, including employees, agents, consultants, and
contractors, who have contributed to or participated in the conception and
development of any of the Company Intellectual Property either (i) have been
party to a "work-for-hire" arrangement or agreement with the Company, whether in
accordance with applicable federal and state law, domestic or foreign, or
otherwise, that has accorded the Company full, effective, exclusive and original
ownership of all tangible and intangible Property thereby arising, or (ii) have
executed appropriate instruments of assignment in favor of the Company as
assignee that have conveyed to the Company full, effective and exclusive
ownership of all tangible and intangible Property thereby arising.
18
(g) The transactions contemplated under this Agreement and the Investment
Documents will not alter, impair or otherwise affect any rights of the Company
in any Company Intellectual Property.
(h) The Company has taken all commercially reasonable steps necessary to
protect the proprietary nature of the Company Intellectual Property and to
maintain in confidence all trade secrets and confidential information owned or
used by the Company.
(i) Company Intellectual Property does not include any Publicly Available
Software and the Company has not used Publicly Available Software in whole or in
part in the development of any part of Company Intellectual Property in a manner
that may subject Company Intellectual Property in whole or in part to all or
part of the license obligations of any Publicly Available Software.
(j) All (i) franchises, permits, licenses and other similar authority and
(ii) Intellectual Property, which, in any case, are owned, possessed or used by
any Related Party (other than Purchaser) or which any Related Party (other than
Purchaser) has the right to own, possess or use, and which in any way are or may
be usable now or in the future for the conduct of the Company's business as now
conducted or as planned to be conducted, have been duly and validly transferred
in full to the Company. The documents and instruments evidencing such transfer
are listed in Schedule II, and a copy thereof has been delivered to Purchaser.
(k) The Company has all Intellectual Property, franchises, permits,
licenses and other similar authority, necessary for the conduct of its business
as now being conducted by it and believes it can obtain any similar authority
necessary for the conduct of its business as planned to be conducted, and it is
not in violation, nor will the transactions contemplated by this Agreement cause
a violation, of the terms or provisions of any such franchise, permit, license
or other similar authority.
4.15. Registration Rights; Rights of Participation. Except as provided in
the Registration Rights Agreement and that certain registration rights agreement
dated January 31st, 2001 between the Company and DMTR, LLC, (A) the Company has
not granted or agreed to grant to any person or entity any rights (including,
without limitation, "piggy-back" registration rights) to have any securities of
the Company registered with the Commission or any other governmental authority
which has not been satisfied in full prior to the date hereof and (B) no person
or entity, including, but not limited to, current or former stockholders of the
Company, underwriters, brokers, agents or other third parties, has any right of
first refusal, preemptive right, right of participation, anti-dilutive right or
any similar right to participate in, or to receive securities or other assets of
the Company solely as a result of the transactions contemplated by this
Agreement or the other Investment Documents.
4.16. Solicitation; Other Issuances of Securities. Neither the Company nor
any of its Subsidiaries or Affiliates, nor any person acting on its or their
behalf, (i) has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D) in connection with the offer or
sale of the Securities, or (ii) has, directly or indirectly, made any offers or
sales of any security or the right to purchase any security, or solicited any
offers to buy any security or any such right, under circumstances that would
require registration of the Securities under the Securities Act or that would
cause this offering of Securities to be integrated with any prior offering of
securities of the Company for purposes of the Securities Act.
19
4.17. Issuance Taxes. No stock transfer or other taxes (other than income
taxes) are required to be paid in connection with the issuance and sale of any
of the Securities, other than such taxes for which the Company has established
appropriate reserves and intends to pay in full on or before the Initial
Closing.
4.18. Fees. The Company is not obligated to pay any compensation or other
fee, cost or related expenditure to any underwriter, broker, agent or other
representative in connection with the transactions contemplated hereby. The
Company will indemnify and hold harmless Purchaser from and against any claim by
any person or entity alleging that, as a result of any agreement or arrangement
between such Person and the Company, Purchaser is obligated to pay any such
compensation, fee, cost or related expenditure in connection with the
transactions contemplated hereby.
4.19. Offering.
(a) Except as set forth on Schedule II, within the past six (6) months,
the Company has not, either directly or through any agent, offered any of the
Preferred Shares or Warrant or any Capital Stock, security or securities similar
to the Preferred Shares or Warrant or, to the extent any such offering would be
integrated with the offering of the Preferred Shares and Warrant, any Common
Stock, for sale to, or solicited any offers to buy the Preferred Shares or
Warrant or, to the extent of any such integration, Common Stock, or any part
thereof or any such similar Capital Stock, security or securities from, or
otherwise approached or negotiated in respect thereof with, any party or parties
other than Purchaser, its employees, prospective employees or institutional or
other sophisticated or accredited investors (as defined in Rule 501 of
Regulation D promulgated under the Securities Act), each of which was offered
all or a portion of the Preferred Shares or Warrant at private sale for
investment.
(b) Subject to the truth and accuracy of Purchaser's representations set
forth in this Agreement, the offer, sale and issuance of the Securities to
Purchaser as contemplated by this Agreement and the other Investment Documents
are exempt from the registration requirements of the Securities Act and all
applicable state securities laws, and neither the Company nor, to the Company's
knowledge, anyone acting on its behalf will take any action hereafter that would
cause the loss of such exemption.
4.20. Compliance with Other Instruments. The Company is not in default (a)
under its Restated Certificate of Incorporation or Bylaws, in each case as
amended to the date hereof, (b) under any agreement, order or other instrument
to which the Company is a party or by which it or any of its Property is bound
or affected or (c) with respect to any order, writ, injunction or decree of any
court or any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, and
to the best of its knowledge, there exists no condition, event or act which
constitutes, or which after notice, lapse of time or both could constitute, such
a default which in the case of (a), (b) or (c) could reasonably be expected to
have a Material Adverse Effect.
20
4.21. Employees.
(a) No employee of the Company and no Related Party is, or is now expected
to be, in violation of any term of any employment contract, patent disclosure
agreement, non-competition agreement, or any other contract or agreement with
any prior employer or any other Person or any restrictive covenant in such an
agreement, or any obligation imposed by common law or otherwise, relating to the
right of any such employee or Related Party to be employed by the Company or
companies similarly situated because of the nature of the business conducted or
to be conducted by the Company or companies similarly situated or relating to
the use of trade secrets or proprietary information of others, and, to the
Company's knowledge, the continued employment of the Company's employees or
Related Parties does not subject the Company or Purchaser to any liability for
any such violation.
(b) Each of the Company's present or former employees who have had access
to proprietary information of the Company has executed a confidentiality and
non-disclosure agreement. To the best of the Company's knowledge and belief, no
employee or former employee of the Company is, or is now expected to be, in
violation of the terms of the aforesaid agreements or of any other obligation
relating to the use of confidential or proprietary information of the Company.
Each of such confidentiality and non-disclosure agreements is in full force and
effect.
(c) To the best of the Company's knowledge, no officer or Key Employee of
the Company has any present intent of terminating his or her employment with the
Company.
(d) To the best of the Company's knowledge, neither the Company nor any
officer, director, employee or agent of any of the foregoing has at any time on
or prior to the date hereof been a party to any illegal acts, including bribes,
kickbacks or other arrangements prohibited by any federal, state or local law,
and the Company forever warrants, covenants and agrees that it will not
knowingly participate in any illegal act at any time that Purchaser owns or
holds any Preferred Shares, the Warrant, Warrant Shares, or any other Capital
Stock or other securities of the Company.
(e) Daniel Bertram is the only Key Employee of the Company.
(f) Except as set forth in Schedule II, the Company has not made any
representations regarding equity incentives to any officer, employees, director
or consultant that are inconsistent with the share amounts and terms set forth
in the minutes of the Company's Board of Directors.
(g) Each former Key Employee whose employment was terminated by the
Company has entered into an agreement with the Company providing for the full
release of any claims against the Company, any Related Party or any Company
Affiliate arising out of such employment.
(h) The Company does not have or make contributions to any pension plans,
defined benefit plans or defined contribution plans for its employees which are
subject to ERISA, except as set forth on Schedule II. With respect to such
plans, if any, listed on Schedule II, the Company is in compliance with the
applicable provisions of ERISA. The Company has not incurred any unremedied
accumulated funding deficiency within the meaning of ERISA or any unsatisfied
liability to the Pension Benefit Guaranty Corporation established under ERISA in
connection with any employee pension plan established or maintained by the
Company under the jurisdiction of ERISA. No Reportable Event or "Prohibited
Transaction" (as defined in Section 4043 of ERISA) has occurred with respect to
any plan administered by the Company.
21
(i) The Company is not bound by or subject to (and none of its assets or
properties is bound by or subject to) any written or oral, express or implied,
contract, commitment or arrangement with any labor union, and no labor union has
requested or, to the knowledge of the Company, has sought to represent any of
the employees, representatives or agents of the Company. Other than as set forth
in Schedule II, there is no strike or other labor dispute involving the Company
pending, or to the Company's knowledge, threatened, which could reasonably be
expected to have a Material Adverse Effect, nor is the Company aware of any
labor organization activity involving its employees.
(j) To the Company's knowledge, none of the current officers or current
directors of the Company during the previous five (5) years have been (a)
subject to voluntary or involuntary petition under the federal bankruptcy laws
or any state insolvency law or the appointment of a receiver, fiscal agent or
similar officer by a court for his/her business or property; (b) convicted in a
criminal proceeding or named as a subject of a pending criminal proceeding
(excluding traffic violations and other minor offenses); (c) subject to any
order, judgment, or decree (not subsequently reversed, suspended, or vacated) of
any court of competent jurisdiction permanently or temporarily enjoining him/her
from engaging, or otherwise imposing limits or conditions on his/her engagement
in any securities, investment advisory, banking, insurance, or other type of
business or acting as an officer or director of a public company; or (d) found
by a court of competent jurisdiction in a civil action or by the Commission to
have violated any federal or state securities, commodities, or unfair trade
practices law, which such judgment or finding has not been subsequently
reversed, suspended, or vacated.
(k) Each officer and Key Employee of the Company is currently devoting
substantially all of his/her business time to the conduct of the business of the
Company. Except as set forth in Schedule II, the Company is not aware that any
officer or Key Employee of the Company is planning to work less than full time
at the Company in the future. No officer or Key Employee is currently working
or, to the Company's knowledge, plans to work for a Competitor, whether or not
such officer or Key Employee is or will be compensated by such Competitor.
(l) Other than (i) standard employee benefits generally made available to
all employees and non-standard employment agreements disclosed in Schedule II,
(ii) standard director and officer indemnification agreements approved by the
Board of Directors, (iii) the purchase of shares of the Company's Capital Stock
and the issuance of options to purchase shares of the Company's Common Stock, in
each instance, approved by the Board of Directors, and (iv) as contemplated by
the Investment Documents, there are no agreements, understandings or proposed
transactions between the Company and any of its officers, directors, or Key
Employees, or any Company Affiliate thereof.
4.22. Insurance. The Company maintains insurance for itself and its
Subsidiaries, including director's and officer's insurance, in such amounts and
covering such losses and risks as is reasonably sufficient and customary in the
businesses in which the Company and its Subsidiaries are engaged. No notice of
cancellation has been received for any of such policies and the Company is in
compliance with all of the terms and conditions thereof. The Company has no
reason to believe that it will not be able to renew any existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue doing business as currently
conducted without a significant increase in cost.
22
4.23. Merger/Sale Discussions. Except as set forth in Schedule II, the
Company has not engaged in the past six (6) months in any discussion with any
representative of any Person, regarding (a) a sale of all or substantially all
of the Company's assets or Capital Stock, or (b) any merger, consolidation or
other business combination transaction of the Company with or into another
Person.
4.24. Business of the Company. The Company has no knowledge or belief that
(a) there exists, or there is pending or planned, any statute, rule, law,
regulation, standard or code which could reasonably be expected to have a
Material Adverse Effect, or (b) there is any other fact which in the future
could reasonably be expected to have a Material Adverse Effect.
4.25. Sufficient Assets. The Company Intellectual Property, real and
personal Property and other assets of the Company constitute all of the tangible
and intangible assets necessary for the conduct of the business as currently
conducted by the Company.
4.26. Environmental, Safety and Health Laws.
(a) To its knowledge, the Company is not in violation of any applicable
statute, law or regulation relating to the environment or occupational health
and safety, and, to its knowledge, no material expenditures are or will be
required in order to comply with any such existing statute, law or regulation.
(b) No Hazardous Materials (as defined below) are used or have been used,
stored, or disposed of by the Company or, to the Company's knowledge after
reasonable investigation, by any other Person on any Property owned, leased or
used by the Company. For the purposes of the preceding sentence, "Hazardous
Materials" shall mean (i) materials which are listed or otherwise defined as
"hazardous" or "toxic" under any applicable local, state, federal or foreign
laws and regulations that govern the existence or remedy of contamination on
Property, the protection of the environment from contamination, the control of
hazardous wastes, or other activities involving hazardous substances, including
building materials, or (ii) any petroleum products or nuclear materials.
(c) Schedule II contains a list of all permits held by the Company
relating the foregoing clauses of this Section, including without limitation all
environmental permits.
4.27. Applicability of, and Compliance With, Other Laws.
(a) The Company is presently and at all times since inception has been in
all material respects in compliance with all federal, state, local or foreign
laws, ordinances, regulations and orders applicable to its business, the failure
to comply with which could reasonably be expected to have a Material Adverse
Effect.
23
(b) The Company's employment practices and policies are in material
compliance with (i) all applicable laws of the United States and each applicable
jurisdiction relating to equal employment opportunity, and any rules,
regulations, administrative orders and executive orders relating thereto and
(ii) the applicable terms, relating to equal opportunity, of any contract,
agreement or grant the Company has with, from or relating (by way of subcontract
or otherwise) to any other contract, agreement or grant of any federal or state
governmental unit. The Company has not been the subject of any charge of
employment discrimination made against it by the United States Equal Employment
Opportunity Commission or any other governmental unit, and, to its knowledge, is
not presently subject to any formal or informal proceedings before, or
investigations by, such commission or governmental unit. To the Company's
knowledge, neither the Company nor any of its employees nor any Related Parties
are presently under investigation by any commission or governmental agency for
purposes of security clearance or otherwise.
(c) Subject to the truth of the representations and warranties of
Purchaser hereunder, the Company is not in violation of any federal or state
securities law, rule, order or regulation.
4.28. Permits. The Company and each of its Subsidiaries has all
franchises, permits, licenses and any similar authority necessary for the
conduct of its business, the lack of which could reasonably be expected to have
a Material Adverse Effect. The Company is not in default in any material respect
under any of such franchises, permits, licenses or other similar authority, and
all such licenses and permits are in full force and effect and no material
violations exist in respect of any such licenses or permits and no proceeding is
pending or threatened to revoke or limit any thereof.
4.29. Exchange Act Registration; Listing. The Company's Common Stock is
registered pursuant to Section 12(b) of the Exchange Act and is quoted on the
Pink Sheets. The Company has taken no action designed to, or which, to the
knowledge of the Company, may have the effect of, terminating the registration
of the Common Stock under the Exchange Act or and has no knowledge that the all
of the market makers intend stop quoting the Common Stock on the Pink Sheets.
4.30. Investment Company Status. The Company is not, and immediately after
receipt of payment for the Securities issued under this Agreement and the other
Investment Documents will not be, an "investment company" or an entity
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended (the "Investment Company Act"), and the Company
shall conduct its business in a manner so that it will not become subject to the
Investment Company Act.
4.31. Sarbanes-Oxley Act; Internal Controls and Procedures. The Company is
in compliance in all material respects with all applicable requirements of the
Sarbanes-Oxley Act of 2002 and all applicable rules and regulations promulgated
by the SEC thereunder that are effective as of the date hereof. The Company
maintains internal accounting controls, policies and procedures, and such books
and records as are reasonably designed to provide reasonable assurance that (i)
all transactions to which the Company or any Subsidiary is a party or by which
its Properties are bound are effected by a duly authorized employee or agent of
the Company, supervised by and acting within the scope of the authority granted
by the Company's senior management; (ii) the recorded accounting of the
Company's consolidated assets is compared with existing assets at regular
intervals; and (iii) all transactions to which the Company or any Subsidiary is
a party, or by which its Properties are bound, are recorded (and such records
maintained) in accordance with all Government Requirements and as may be
necessary or appropriate to ensure that the financial statements of the Company
are prepared in accordance with GAAP.
24
4.32. United States Real Property Holding Corporation. The Company is not
now and has never been during the last five (5) calendar years a "United States
Real Property Holding Corporation" as defined in Section 897(c)(2) of the Code
and Section 1.897-2(b) of the Regulations promulgated by the Internal Revenue
Service.
4.33. Section 83(b) Elections. To the best of the Company's knowledge, all
individuals who have purchased unvested shares of the Company's Common Stock or
Preferred Stock have timely filed, or will file within the time period
prescribed by the Internal Revenue Code, elections under Section 83(b) of the
Internal Revenue Code.
4.34. Foreign Corrupt Practices Act. The Company has not, nor, to the
Company's knowledge, any of the Company's current or former shareholders,
directors, officers, agents, employees or other Persons acting on behalf of the
Company has on behalf of the Company or in connection with its business, (a)
used any corporate funds for unlawful contributions, gifts, entertainment or
other unlawful expenses relating to political activity, (b) made any direct or
indirect unlawful payments to foreign or domestic government officials or
employees from corporate funds, (c) violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended, or any rules and regulations
thereunder, (d) established or maintained any unlawful or unrecorded fund of
corporate monies or other assets, (e) made any false or fictitious entries on
the books and records of the Company or (f) made any unlawful bribe, rebate,
payoff, influence payment, kickback or other unlawful payment of any nature.
4.35. Embargoed Person. None of the funds or other assets of the Company
or its Subsidiaries constitutes Property of, or is beneficially owned, directly
or indirectly, by, any person subject to trade restrictions under United States
law, including, but not limited to, the International Emergency Economic Powers
Act, 50 U.S.C. ss. 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App.
1 et seq., and any Executive Orders or regulations promulgated under any such
United States laws (each, an "Embargoed Person"), with the result that the
investments evidenced by the Securities are or would be in violation of law. To
the Company's knowledge, no Embargoed Person has any interest of any nature
whatsoever in the Company or any of its Subsidiaries with the result that the
investments evidenced by the Securities are or would be in violation of law.
None of the funds or other assets of the Company has been derived from any
unlawful activity with the result that the investments evidenced by the
Securities are or would be in violation of law.
4.36. Books and Records. The books of account, ledgers, order books,
disclosure schedules attached hereto and all other records and documents of the
Company generally reflect all material information relating to the business of
the Company, the location and condition of its assets, and the nature of all
transactions giving rise to the obligations or accounts receivable of the
Company.
25
4.37. Use of Proceeds. The Company will use the proceeds of the offering
for payment of the expenses of the offering and for working capital.
4.38. Disclosure.
(a) Neither this Agreement, Schedule II, the Disclosure Documents, the
other Investment Documents, nor any other document, certificate or written
statement furnished to Purchaser by or on behalf of the Company in connection
with the offer and sale of the Securities taken as a whole (except to the extent
corrected prior to the date hereof), contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained therein or herein not misleading in the light of the circumstances
under which they were made. There is no fact which the Company has not disclosed
to Purchaser in writing that materially adversely affects or, so far as the
Company can now foresee, could reasonably be expected to materially adversely
affect the properties, business, prospects, profits or condition (financial or
otherwise) of the Company or the ability of the Company to perform its
obligations under this Agreement and the other Investment Documents. The
forecasts, projections, estimates and other forward-looking matters furnished to
Purchaser were prepared on the basis of the Company's good faith estimates. The
Company does not have any reason to believe that any assumptions or statements
of opinion contained in such forecasts, projections, estimates or other
forward-looking matters are unreasonable or false, and the Company believes that
Purchaser may reasonably rely thereon. The Company has made available to
Purchaser all the information reasonably available to the Company that Purchaser
has requested for deciding whether to acquire the Preferred Shares and the
Warrant.
(b) The Company shall, not later the earlier to occur of (i) the Effective
Date and (ii) ninety days (90) days following the Initial Closing Date (the
earlier of such dates being the "Disclosure Deadline"), take all actions
necessary (including, without limitation, making public disclosure of
information in compliance with Regulation FD under the Exchange Act) in order to
ensure that, as of the Disclosure Deadline, no information provided by the
Company, or any Person acting on its behalf, to Purchaser on or before the
Execution Date, constitutes (as of the Disclosure Deadline) material non-public
information concerning the Company.
4.39. Anti-Takeover Provisions. The Company and its board of directors
have taken all necessary action, if any, in order to render inapplicable any
control share acquisition, business combination or other similar anti-takeover
provision under the laws of the state of its incorporation which is or could
become applicable to Purchaser as a result of the transactions contemplated by
this Agreement, including, without limitation, the Company's issuance of the
Securities and Purchaser's ownership of the Securities.
4.40. Solvency. Based on the financial condition of the Company as of the
Initial Closing Date after giving effect to the Investment, (i) the Company's
fair saleable value of its assets exceeds the amount that will be required to be
paid on or in respect of the Company's existing debts and other liabilities
(including known contingent liabilities) as they mature; (ii) the Company's
assets do not constitute unreasonably small capital to carry on its business for
the current fiscal year as now conducted and as proposed to be conducted
including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, and projected capital
requirements and capital availability thereof; and (iii) the current cash flow
of the Company, together with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated uses of
the cash, would be sufficient to pay all amounts on or in respect of its debt
when such amounts are required to be paid. The Company does not intend to incur
debts beyond its ability to pay such debts as they mature (taking into account
the timing and amounts of cash to be payable on or in respect of its debt).
26
SECTION 5.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Purchaser represents and warrants to the Company as follows:
5.1. Authority; Enforceability. Purchaser is duly and validly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization with the requisite power and authority to purchase
the Preferred Shares and the Warrant and to execute and deliver this Agreement
and the other Investment Agreements. Upon the execution and delivery by
Purchaser of any Investment Document, such Investment Document will constitute
the legal, valid and binding obligations of Purchaser, enforceable against
Purchaser in accordance with its terms, subject to laws of general application
from time to time in effect affecting creditors' rights and the exercise of
judicial discretion in accordance with general equitable principles.
5.2. Accredited Investor. Purchaser is an "accredited investor" as that
term is defined in Rule 501 of Regulation D and is acquiring the Preferred
Shares and the Warrant being purchased by it hereunder solely for its own
account, and not with a present view to the public resale or distribution of all
or any part thereof, except pursuant to sales that are registered under, or are
exempt from the registration requirements of, the Securities Act; provided,
however, that, in making such representation, Purchaser does not agree to hold
the Preferred Shares, the Warrant and the Warrant Shares for any minimum or
specific term and reserves the right to sell, transfer or otherwise dispose of
Preferred Shares, the Warrant and the Warrant Shares at any time in accordance
with the provisions of this Investment Documents and with federal and state
securities laws applicable to such sale, transfer or disposition.
5.3. Information. To the extent requested by Purchaser, the Company has,
prior to the Initial Closing, provided Purchaser with information regarding the
business, operations and financial condition of the Company, and has, prior to
the Initial Closing, granted Purchaser the opportunity to ask questions of and
receive satisfactory answers from representatives of the Company, its officers,
directors, employees and agents concerning the Company and materials relating to
the terms and conditions of the purchase and sale of the Preferred Shares and
the Warrant hereunder, and based thereon Purchaser believes it can make an
informed decision with respect to its investment in the Preferred Shares and the
Warrant. Neither such information nor any other investigation conducted by
Purchaser or its representatives shall modify, amend or otherwise affect
Purchaser's right to rely on the Company's representations and warranties
contained in this Agreement, including without limitation those set forth in
Section 4.38 hereof.
27
5.4. Limitations on Disposition. Purchaser acknowledges that, except as
provided in the Registration Rights Agreement, the Preferred Shares, the Warrant
and the Warrant Shares have not been and are not being registered under the
Securities Act and may not be transferred or resold without registration under
the Securities Act or unless pursuant to an exemption therefrom.
5.5. Legend. Purchaser understands that the certificates representing the
Preferred Shares and the Warrant may bear at issuance a restrictive legend in
substantially the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"), or the securities laws of any state, and may not
be offered or sold unless a registration statement under the
Securities Act and applicable state securities laws shall have
become effective with regard thereto, or an exemption from
registration under the Securities Act and applicable state
securities laws is available in connection with such offer or sale.
Notwithstanding the foregoing but subject to compliance with the
requirements of the Securities Act and applicable state securities
laws, these securities and the securities issuable upon exercise
hereof may be pledged or hypothecated in connection with a bona fide
margin account or other loan secured by such securities."
Notwithstanding the foregoing, it is agreed that, as long as (A) the
resale or transfer (including without limitation a pledge) of any of the
Preferred Shares or the Warrant is registered pursuant to an effective
registration statement, (B) such Preferred Shares and Warrant have been sold
pursuant to Rule 144, subject to receipt by the Company of customary
documentation in connection therewith, or (C) such Preferred Shares and Warrant
are eligible for resale under Rule 144(k) or any successor provision and the
holder thereof represents in writing that it is not an affiliate of the Company
and is eligible to use such rule for public resales of such securities, the
certificates representing Preferred Shares and Warrant shall be issued without
any legend or other restrictive language and, with respect to Preferred Shares
and Warrant upon which such legend is stamped, the Company shall issue new
certificates without such legend to the holder upon request.
5.6. Reliance on Exemptions. Purchaser understands that the Preferred
Shares and the Warrant are being offered and sold to it in reliance upon
specific exemptions from the registration requirements of federal and state
securities laws and that the Company is relying upon the truth and accuracy of
the representations and warranties of Purchaser set forth in this Section 5 in
order to determine the availability of such exemptions and the eligibility of
Purchaser to acquire the Preferred Shares and the Warrant.
5.7. Restricted Securities.
(a) Purchaser understands and agrees that the Preferred Shares and the
Warrant are "restricted securities" within the meaning of Rule 144 that can and
will only be resold by Purchaser pursuant to (i) an effective registration
statement under the Securities Act where the prospectus delivery requirements
are complied with or (ii) under an applicable exemption from registration under
the Act, and in compliance with applicable state securities or "blue sky" laws.
28
(b) Purchaser understands that any sales by Purchaser of any of the
Preferred Shares or Warrant that are not made in compliance with paragraph (a)
of this Section 5.7 could subject the Company and Purchaser to possible civil
and criminal liability under applicably federal securities laws and applicable
state securities or "blue sky" laws.
(c) Purchaser (i) agrees that it will only sell the Preferred Shares and
the Warrant in a transaction that complies in all material respects with
applicable federal and state securities laws, (ii) agrees that it will not sell
or otherwise dispose of or transfer the Preferred Shares or the Warrant or any
interest therein in a transaction that is part of a plan or scheme to evade the
registration requirements of the Securities Act and (iii) acknowledges and
agrees that notwithstanding the removal from the certificates representing the
Securities of the legend set forth in Section 5.5 hereof upon effectiveness of a
registration statement covering the Preferred Shares, the Warrant or the Warrant
Shares, such securities will remain "restricted securities" until they have been
sold pursuant to (x) an effective registration statement or (y) Rule 144, and
Purchaser will remain responsible for compliance with applicable federal and
state securities laws in connection with any resale by Purchaser of the
Preferred Shares or the Warrant.
5.8. Address. Purchaser hereby represents that the address furnished by it
on Schedule I of this Agreement is the undersigned's principal business.
SECTION 6.
COVENANTS OF THE COMPANY.
6.1. Filings. The Company agrees with Purchaser that the Company will:
(a) file a Form D with the Commission and any applicable state securities
departments with respect to the Securities issued at the Initial Closing as and
when required under Regulation D and will provide a copy thereof to Purchaser
promptly after such filing;
(b) take such action as the Company reasonably determines upon the advice
of counsel is necessary to qualify the Securities for sale under applicable
state or "blue-sky" laws or obtain an exemption therefrom, and shall provide
evidence of any such action to Purchaser at its request;
(c) (i) on or prior to 8:30 a.m. (eastern time) on the Business Day
immediately following the Execution Date, issue a press release disclosing the
material terms of this Agreement and the Investment and (ii) on or prior to 8:30
a.m. (eastern time) on the second Business Day following the Execution Date,
file with the Commission a Current Report on Form 8-K disclosing the material
terms of this Agreement and the transactions contemplated hereby, including as
exhibits this Agreement, the Amended Certificate and the other Investment
Documents; provided, however, that Purchaser shall have a reasonable opportunity
to review and comment on any such press release or Current Report on Form 8-K
prior to the issuance or filing thereof. Thereafter, the Company shall timely
file any filings and notices required by the Commission or applicable law with
respect to the transactions contemplated hereby;
29
(d) on or prior to 8:30 a.m. on the second Business Day following the
Execution Date, file with the Commission pursuant to Regulation 14C under the
Exchange Act a preliminary information statement with respect to Majority
Stockholder Consent and shall thereafter take such action as is necessary to
comply with the provisions of such Regulation 14C and applicable law with
respect to such Majority Stockholder Consent. The Company will use its best
efforts to have the reverse stock split pursuant to which every thirty (30)
shares of outstanding Common Stock will have been reclassified into one (1)
share of Common Stock consummated by February 15, 2006.
6.2. Corporate Existence. The Company agrees that it will, and shall cause
its Subsidiaries to, during the period beginning on the Execution Date and
ending on the Termination Date:
(a) maintain its corporate existence in good standing;
(b) maintain, keep and preserve all of its Properties necessary in the
proper conduct of its businesses in good repair, working order and condition
(ordinary wear and tear excepted) and make all necessary repairs, renewals and
replacements and improvements thereto, except where the failure to do so would
not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect;
(c) pay or discharge before becoming delinquent (a) all taxes, levies,
assessments and governmental charges imposed on it or its income or profits or
any of its Property and (b) all lawful claims for labor, material and supplies,
which, if unpaid, might become a Lien upon any of its Property, except where the
failure to do so would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect; provided, however, that the Company
shall not be required to pay or discharge any tax, levy, assessment or
governmental charge, or claim for labor, material or supplies, whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings being diligently pursued and for which adequate reserves have been
established under GAAP;
(d) comply with all Governmental Requirements applicable to the operation
of its business (except that the failure to comply with a Governmental
Requirement where the failure to do so does not have, and would not reasonably
be expected to have, individually or in the aggregate with other failures of the
Company to comply with Governmental Requirements, a Material Adverse Effect,
shall not be deemed a breach of this Section 6.2(d);
(e) use its best efforts to comply with all agreements, documents and
instruments binding on it or affecting its Properties or business, including,
without limitation, all Material Contracts, except for instances of
noncompliance that would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect;
(f) provide Purchaser with copies of all materials sent to its
stockholders, in each such case at the same time as such materials are delivered
to such stockholders; and
(g) timely file with the Commission all reports required to be filed
pursuant to the Exchange Act and refrain from terminating its status as an
issuer required by the Exchange Act to file reports thereunder even if the
Exchange Act or the rules or regulations thereunder would permit such
termination; provided, however, that the failure of the Company to timely file a
report required to be filed pursuant to the Exchange Act shall not be deemed a
breach of this Section 6.2(g) if (i) the Company has used its best efforts to
timely file such report, and (ii) such failure does not have and would not
reasonably be expected to have, individually or in the aggregate with other such
failures, a Material Adverse Effect.
30
6.3. Reservation of Common Stock. The Company shall, on the Initial
Closing Date, have authorized and reserved for issuance, and shall keep
available at all times during which the Warrant is outstanding, free from any
preemptive rights, a number of shares of Common Stock (the "Reserved Amount")
that, on the Initial Closing Date, is not less than one hundred twenty five
percent (125%) of the maximum number of shares of Common Stock issuable upon
exercise in full of the outstanding Warrant at the Exercise Price then in
effect, without regard to any limitation on such conversion or exercise that may
otherwise be set forth in the Warrant, and including any shares of Common Stock
issued or issuable, from time to time, as a distribution on or in exchange for
or otherwise with respect to any of the foregoing, whether as dividends, default
payments, on account of anti-dilution or other adjustments or otherwise. In the
event that Purchaser shall sell or otherwise transfer the Warrant, each
transferee shall be allocated a pro rata portion of such transferor's Reserved
Amount. In the event that the Reserved Amount is insufficient at any time to
cover one hundred five percent 105% of the Registrable Securities issuable upon
exercise of the Warrant (based on the Exercise Price then in effect, and without
regard to any restriction on such exercise), the Company shall use its best
efforts (including without limitation holding a meeting of its stockholders) to
increase the Reserved Amount to cover one hundred twenty five percent (125%) of
the maximum number of shares of Common Stock issuable upon exercise in full of
the outstanding Warrant at the Exercise Price then in effect, without regard to
any limitation on such conversion or exercise that may otherwise be set forth in
the Warrant, and including any shares of Common Stock issued or issuable, from
time to time, as a distribution on or in exchange for or otherwise with respect
to any of the foregoing, whether as dividends, default payments, on account of
anti-dilution or other adjustments or otherwise, such increase to be effective
not later than the thirtieth (30th) day (or seventy-fifth (75th) day, in the
event stockholder approval is required for such increase) following the
Company's receipt of written notice of such deficiency.
6.4. Limitation on Debt and Liens. During the period beginning on the
Execution Date and ending on the Termination Date, the Company shall refrain,
and shall ensure that each of its Subsidiaries refrains, (a) from incurring any
Debt (including without limitation by issuing any Debt securities) or increasing
the amount of any existing line of credit or other Debt facility beyond the
amount outstanding on the date hereof, other than Permitted Debt, and (b) from
granting, establishing or maintaining any Lien on any of its assets, including
without limitation any pledge of securities owned or held by it (including
without limitation any securities issued by any such Subsidiary), other than (i)
Permitted Liens (including the imposition of any Lien after the Initial Closing
Date, provided that, upon the imposition of any mechanic's, tax or similar
statutory lien, the Company shall use commercially reasonable efforts to remove
such lien as soon as practicable (including without limitation contesting such
lien in good faith by appropriate proceedings)), (ii) any interest or title of a
lessor under any capitalized lease obligation provided that such Liens do not
extend to any Property or assets which is not leased Property subject to such
capitalized lease obligation, (iii) purchase money Liens to finance Property or
assets of the Company or any Subsidiary of the Company acquired in the ordinary
course of business; provided, however, that (A) the related purchase money Debt
shall not exceed the cost of such Property or assets (including the cost of
design, development, improvement, production, acquisition, construction,
installation and integration) and shall not be secured by any Property or assets
of the Company or any Subsidiary of the Company other than the Property and
assets so acquired or constructed (and any improvements) and (B) the Lien
securing such purchase money Debt shall be created within ten (10) days of such
acquisition, construction or improvement, (iv) Liens upon specific items of
inventory or other goods and proceeds of any Person securing such Person's
obligations in respect of bankers' acceptances issued or created for the account
of such Person to facilitate the purchase, shipment or storage of such inventory
or other goods, and (v) Liens encumbering deposits made to secure obligations
arising from statutory, regulatory, contractual, or warranty requirements of the
Company or any of its subsidiaries, including rights of offset and set off.
31
6.5. Issuance Limitation. During the period beginning on the Execution
Date and ending on the Termination Date, the Company shall not issue, sell or
exchange, or agree or obligate itself to issue, sell or exchange or reserve,
agree to or set aside for issuance, sale or exchange, (1) any Senior Securities
or Pari Passu Securities, (2) any other security of the Company which by its
terms is convertible into or exchangeable or exercisable for any Senior Security
or Pari Passu Security, or (3) any option, warrant or other right to subscribe
for, purchase or otherwise acquire any such security described in the foregoing
clauses (1) and (2); provided, however, that the foregoing shall not apply to
the issuance of Permitted Debt.
6.6. Right of Participation. From the Execution Date through the
Termination Date, the Company will not, directly or indirectly, effect a
Subsequent Placement.
6.7. Certain Transactions. During the period beginning on the Execution
Date and ending on the Termination Date, and except as may be expressly
permitted or required by the Amended Certificate or the Investment Documents,
the Company shall not, nor will it permit any of its Subsidiaries to, create or
otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of the Company or any
Subsidiary of the Company (a) to pay dividends or make any other distribution to
the Company or any Subsidiary of the Company in respect of capital stock or with
respect to any other interest or participation in, or measured by, its profits,
or (b) to pay any amounts that are or become payable under the Amended
Certificate or any of the Investment Documents.
6.8. Transactions with Affiliates. The Company agrees that, during the
period beginning on the Execution Date and ending on the Termination Date, any
transaction or arrangement between it or any of its Subsidiaries and any
Affiliate or employee of the Company or any of its Subsidiaries shall be
effected only on an arms' length basis and shall be approved by the Board of
Directors, including a majority of the Company's directors not having an
interest in such transaction.
6.9. Use of Purchaser's Name. Except as may be required by applicable law
and/or this Agreement, the Company shall not use, directly or indirectly,
Purchaser's name or the name of any of its Affiliates in any advertisement,
announcement, press release or other similar communication unless it has
received the prior written consent of Purchaser for the specific use
contemplated or as otherwise required by applicable law or regulation.
32
6.10. Company's Instructions to Transfer Agent. Upon reception by the
Company of a notice to exercise by a holder of the Warrant , the Company shall
execute and deliver irrevocable written instructions to the transfer agent for
its Common Stock (the "Transfer Agent"), and provide Purchaser with a copy
thereof, directing the Transfer Agent (i) to issue certificates representing
Warrant Shares upon exercise of the Warrant and (ii) to deliver such
certificates to Purchaser no later than the close of business on the third (3rd)
Business Day following the related Exercise Date (as defined in the Warrant).
Such certificates shall bear only such legends as are required pursuant to
Section 5.4 hereof or applicable law. The Company shall instruct the transfer
agent that, in lieu of delivering physical certificates representing shares of
Common Stock to Purchaser upon conversion of the Preferred Shares, or exercise
of the Warrant, and as long as the Transfer Agent is a participant in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer program
("FAST"), and Purchaser has not informed the Company that it wishes to receive
physical certificates therefor, and no restrictive legend is required to appear
on any physical certificate if issued, the transfer agent may effect delivery of
the Warrant Shares, by crediting the account of Purchaser or its nominee at DTC
for the number of shares for which delivery is required hereunder within the
time frame specified above for delivery of certificates. The Company represents
to and agrees with Purchaser that it will not give any instruction to the
Transfer Agent that will conflict with the foregoing instruction or otherwise
restrict Purchaser's right to exercise the Warrant or to receive Warrant Shares
upon exercise of the Warrant. In the event that the Company's relationship with
the Transfer Agent should be terminated for any reason, the Company shall use
its best efforts to cause the Transfer Agent to continue acting as transfer
agent pursuant to the terms hereof until such time that a successor transfer
agent is appointed by the Company and receives the instructions described above.
6.11. No Adverse Action. The Company and its Subsidiaries shall refrain,
during the period beginning on the Execution Date and ending on the Termination
Date, from taking any action or entering into any arrangement which in any way
materially and adversely affects the provisions of this Agreement or any other
Investment Document.
6.12. Limitations on Disposition. Purchaser shall not sell, transfer,
assign or dispose of any Securities, unless:
(a) either (i) there is then in effect an effective registration
statement under the Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration statement or (ii) such
securities may be sold pursuant to Rule 144(k) or any successor provision; or
(b) Purchaser has notified the Company in writing of any such
disposition, received the Company's written consent (which consent shall not be
unreasonably withheld or delayed) to such disposition and furnished the Company
with an opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such Securities under the
Securities Act; provided, however, that no such consent or opinion of counsel
will be required (A) if the sale, transfer or assignment complies with federal
and state securities laws and is made to an Affiliate of Purchaser which is also
an "accredited investor" as that term is defined in Rule 501 of Regulation D,
(B) if the sale, transfer or assignment is made pursuant to Rule 144 and
Purchaser provides the Company with evidence reasonably satisfactory to the
Company that the proposed transaction satisfies the requirements of Rule 144 or
(C) in connection with a bona fide pledge or hypothecation of any Securities
under a margin arrangement with a broker-dealer or other financial institution
or the sale of any such Securities by such broker-dealer or other financial
institution following Purchaser's default under such margin arrangement;
provided, in the case of any such transfer or disposition other than as
described in paragraph (a) or clauses (B) or (C) of this paragraph (b), the
transferee of such Securities makes representations to the Company substantially
similar to those made by Purchaser in Section 5 hereof.
33
6.13. Listing. The Company, promptly following the Initial Closing, shall
use its best efforts to get current in its periodic reports to be filed with the
SEC. Once current, the Company will cause the Common Stock, including all the
Warrant Shares issuable upon exercise of the Warrant (without regard to any
limitation on such conversion or exercise), to be listed on the Over-the-Counter
Bulletin Board.
6.14. Maintenance of Properties and Leases. The Company will keep its
Properties in good repair, working order and condition, and from time to time
make all needful and proper, or legally required, repairs, renewals,
replacements, additions and improvements thereto; and the Company and its
Subsidiaries will at all times comply with each provision of all leases to which
any of them is a party or under which any of them occupies, or has possession
of, any Property.
6.15. Accounts and Records. The Company will keep true records and books
of account in which it will use commercially reasonable efforts to make full,
true and correct entries of all dealings or transactions in relation to its
business and affairs.
6.16. Compliance with Requirements of Governmental Authorities. The
Company shall duly observe and conform to all material requirements of
governmental authorities relating to the conduct of its business or to its
Property or assets. Without limiting the generality of the foregoing, except
where the failure to do so could not reasonably be expected to have a material
adverse effect on the Company, the Company will:
(a) Comply with all minimum funding requirements applicable to any pension
plans, employee benefit plans or employee contribution plans which are subject
to ERISA or to the Code, and comply in all other respects with the provisions of
ERISA and the provisions of the Code applicable to such plans.
(b) Comply with all applicable laws of the United States and of each
applicable jurisdiction relating to equal employment opportunity, any rules,
regulations, administrative orders and executive orders relating thereto and the
applicable terms, relating to equal employment opportunity, of any contract,
agreement or grant the Company has with, from or relating (by way of subcontract
or otherwise) to any other contract, agreement or grant of, any federal or state
governmental unit; and keep all records required to be kept, and file all
reports, affirmative action plans and forms required to be filed, pursuant to
any such applicable law or the terms of any such government contract.
(c) So conduct its business that neither the Company nor any Property
owned or occupied by the Company is in violation of any federal or state
environmental law of any sort or in violation of any federal or state law
relating to occupational health or safety.
34
6.17. Insurance. The Company will maintain in full force and effect
insurance policies on its assets and those of its subsidiaries, by financially
sound and reputable insurers, which are licensed to provide such insurance in
the state in which the assets are located, against loss or damage by fire,
extended coverage and explosion in amounts sufficient to prevent the Company or
any subsidiary from becoming a co-insurer and not in any event less than the
replacement value of the property insured.
6.18. Directors and Officers Insurance. The Company, as soon as
practicable after the Initial Closing, will purchase director's and officer's
liability insurance policies.
6.19. Executive Officers. The Company will not appoint, hire, remove or
change any executive officer without the prior written consent of Purchaser,
which consent will not be unreasonably withheld or delayed.
6.20. Use of Proceeds. The Company will use the proceeds from the sale of
the Preferred Shares and Warrant for the purposes described in this Agreement.
6.21. Compliance by Subsidiaries. The Company will cause any Subsidiary
which it may now have or which it may organize or acquire in the future to
comply fully with all terms and provisions of Section 6 to the same extent as if
such Subsidiary or Subsidiaries were the "Company" herein.
6.22. Indemnification of Purchaser. The Company will indemnify and hold
Purchaser and its members, employees and agents (each, a "Purchaser Party")
harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys' fees and costs of
investigation that any such Purchaser Party may suffer or incur as a result of
or relating to (a) any breach of any of the representations, warranties,
covenants or agreements made by the Company in this Agreement or in the other
Investment Documents or (b) any action instituted against Purchaser, or its
Affiliates, by any stockholder of the Company who is not an Affiliate of
Purchaser, with respect to any of the transactions contemplated by the
Investment Documents (unless such action is based upon (i) a breach of
Purchaser's representation, warranties or covenants under the Investment
Documents, (ii) any agreements or understandings Purchaser may have with any
such stockholder, (iii) any violations by Purchaser of state or federal
securities laws or (iv) any conduct by Purchaser which constitutes fraud, gross
negligence, willful misconduct or malfeasance). If any action shall be brought
against any Purchaser Party in respect of which indemnity may be sought pursuant
to this Agreement, such Purchaser Party shall promptly notify the Company in
writing, and the Company shall have the right to assume the defense thereof with
counsel of its own choosing that is reasonably acceptable to such Purchaser
Party (and Brown Raysman Millstein Felder & Steiner L.L.P. shall be deemed to be
reasonably acceptable to such Purchaser Party). Any Purchaser Party shall have
the right to employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Purchaser Party except that the Company shall pay the reasonable
fees and expenses of such counsel to the extent that (i) the employment thereof
has been specifically authorized by the Company in writing, (ii) the Company has
failed after a reasonable period of time to assume such defense and to employ
counsel or (iii) in such action there is, in the reasonable opinion of such
separate counsel, a material conflict on any material issue between the position
of the Company and the position of such Purchaser Party or a conflict of
interest that would, under applicable attorney codes of ethics, require the
retention of separate counsel for the Company and such Purchaser Party. The
Company will not be liable to any Purchaser Party under this Agreement (i) for
any settlement by an Purchaser Party effected without the Company's prior
written consent, which shall not be unreasonably withheld or delayed; or (ii) to
the extent, but only to the extent that a loss, claim, damage or liability is
attributable to such Purchaser Party's fraud, gross negligence, willful
misconduct or malfeasance or to such Purchaser Party's breach of any of the
representations, warranties, covenants or agreements made by Purchaser in this
Agreement or in the other Investment Documents.
35
6.23. No Integrated Offerings. The Company shall not make any offers or
sales of any security (other than the Securities) under circumstances that would
require registration of the sale of the Securities being offered or sold
hereunder under the Securities Act or cause this offering of the Securities to
be integrated with any other offering of securities by the Company for purposes
of any stockholder approval provision applicable to the Company or its
securities.
6.24. Board of Directors. The Company and the Board of Directors shall
take all action necessary to cause the composition of the Board of Directors to
be amended upon Purchaser's demand to have two (2) Directors, chosen by
Purchaser, appointed to the Board of Directors.
6.25. Financial Covenants.
(a) Budget. The Corporation shall not, and shall cause its
Subsidiaries not to, expend any funds nor incur any expenses except as provided
for in the budget delivered to Purchaser (the "Budget") and attached hereto as
Exhibit VIII, which shall also include a detailed income statement, balance
sheet and statement of cash flows. Purchaser hereby agrees that aggregate
expenditures, if any, exceeding the total budgeted amount by 5% or less shall be
deemed to be within the Budget.
(b) Financial Statements and Other Reports. The Corporation will
maintain, and cause each of its Subsidiaries to maintain, a system of accounting
established and administered in accordance with sound business practices to
permit preparation of financial statements in conformity with GAAP (it being
understood that quarterly financial statements are not required to have footnote
disclosures). The Corporation will deliver or cause to be delivered each of the
financial statements and other reports described below to Purchaser in addition
to copies of any other financial statements prepared by the Corporation for
filing with securities commissions and other regulatory authorities.
(i) Monthly Financials. As soon as available and in any event
within forty-five (45) days after the end of each month, the Corporation will
deliver or cause to be delivered its consolidated balance sheet, as at the end
of such month, and the related consolidated statements of loss and deficit and
cash flows for such month, and for the period from the beginning of the then
current fiscal year of the Corporation to the end of such month, along with a
comparison to the operating budget for such quarter.
36
(ii) Quarterly Financials; Other Quarterly Reports. As soon as
available and in any event within forty-five (45) days after the end of each
fiscal quarter, the Corporation will deliver or cause to be delivered (A) its
consolidated balance sheet, as at the end of such fiscal quarter, and the
related consolidated statements of income, shareholders' equity, loss and
deficit (or income) and cash flows for such fiscal quarter and for the period
from the beginning of the then current fiscal year of the Corporation to the end
of such quarter, (B) a copy of its consolidating financial statements for such
fiscal quarter, but only if material to an understanding of the Corporation's
operations and financial condition, and (C) a schedule of investments made by
the Corporation or any of its Subsidiaries since the date such information was
last provided to Lenders.
(iii) Year-End Financials. As soon as available and in any
event within ninety (90) days after the end of each fiscal year of the
Corporation, the Corporation will deliver or cause to be delivered (A) its
consolidated balance sheet, as at the end of such year, and the related
consolidated statements of loss and deficit (or income), cash flows, and
shareholders' equity for such fiscal year, (B) a copy of its consolidating
financial statements for such fiscal year, but only if material to an
understanding of the Corporation's operations and financial condition, and (C) a
report with respect to the financial statements received pursuant to this
subsection from certified public accountants nationally recognized in the United
States, selected by the Corporation.
(iv) Other Weekly/Monthly Reports. As soon as available, and
in any event within four (4) Business Days after the end of each week, the
Corporation will deliver or cause to be delivered (A) a report of sales booked
by the Corporation during such week, (B) a report of pending and projected order
activity as of the end of such week, and (C) a report providing detailed
accounts receivable as of the end of such week. As soon as available, and in any
event within ten (10) days after the end of each month, the Corporation will
deliver or cause to be delivered a report providing detailed accounts payable
aging information as of the end of such month.
6.26. Compliance Certificates. Together with each delivery of financial
statements of the Corporation, the Corporation will deliver or cause to be
delivered to Purchaser a fully and properly completed compliance certificate
substantially in the form attached hereto as Exhibit VI (each, a "Compliance
Certificate") signed by the chief executive officer, chief operating officer or
chief financial officer of the Corporation.
6.27. SEC Filings. The Company shall use its best efforts to be current as
of January 31st, 2006 with, and timely file with the Commission, all reports,
schedules, registration statements and proxy statements that the Company is
required to file with the Commission.
6.28. Franchise Tax. The Company will calculate the precise amount of
franchise tax due to the Secretary of State of the Sate of Delaware for 2003 and
2004 and will pay the entire amount due, as soon as practicable after the
Initial Closing, and in no event later than January 15h, 2006.
37
SECTION 7.
CONDITIONS TO INITIAL CLOSING OF PURCHASER
The obligation of Purchaser to effect the Initial Closing, including its
obligation to purchase and pay for the Preferred Shares and the Warrant to be
issued at the Initial Closing, is subject to the fulfillment to its satisfaction
on or prior to the Initial Closing Date of each of the following conditions:
7.1. Representations and Warranties. The representations and warranties
made by the Company in Section 4 hereof shall be true and correct in all
material respects as of the Initial Closing and, with respect thereto, after
giving effect to the sale and issuance of the Preferred Shares and Warrant at
the Initial Closing.
7.2. Performance. All covenants, agreements and conditions contained in
this Agreement to be performed or complied with by the Company on or prior to
the Initial Closing Date shall have been so performed or complied with in all
material respects.
7.3. Restructuring. The Company shall have taken all necessary corporate
actions so that at Initial Closing (i) the $2.9 million owed by the Company
DMTR, LLC will have been converted into 244,736,145 shares of Common Stock of
the Company; (ii) the 862,652 outstanding shares of Series A Preferred Stock
owned by those stockholders listed on Exhibit III will have been converted into
48,947,229 shares of Common Stock of the Company; and (iii) a reverse stock
split pursuant to which every thirty (30) shares of outstanding Common Stock
will have been reclassified into one (1) share of Common Stock shall have been
approved by the resolutions of the stockholders of Company holding shares of the
Company's Capital Stock representing a majority of the voting power of the
Company's outstanding Capital Stock (the "Majority Stockholder Consent").
7.4. Certificate of Designations. The Company shall have filed the
Certificate of Designations with the Secretary of State of Delaware on or prior
to the Initial Closing, which shall continue to be in full force and effect as
of the Initial Closing, and shall have delivered to Purchaser written evidence
of the acceptance of such filing.
7.5. Officers' Certificate. The Company shall have delivered to Purchaser
a certificate, signed by the Chief Executive Officer and Chief Financial Officer
of the Company, certifying that the conditions specified in this Section 7 have
been fulfilled as of the Initial Closing Date, it being understood that
Purchaser may rely on such certificate as though it were a representation and
warranty of the Company made herein.
7.6. Secretary's Certificate. The Secretary of the Company shall have
delivered to Purchaser at the Initial Closing a certificate certifying (i) the
Restated Certificate of Incorporation of the Company, (ii) the Bylaws of the
Company, (iii) the resolutions of the Board of Directors of the Company
approving the Investment Documents and the transactions contemplated under the
Investment Documents, (iv) the Majority Stockholder Consent, (v) the Certificate
of Designations and (vi) certifying that such documents are true and correct
copies of the originals and that such resolutions have not been amended or
superseded, it being understood that Purchaser may rely on such certificate as
thought it were a representation and warranty of the Company.
38
7.7. Incumbency Certificate. Purchaser shall have received from the
Company an incumbency certificate, dated the Initial Closing Date, executed by
one or more duly authorized officers thereof and giving the names and bearing a
specimen signature of each individual who shall be authorized to sign, in the
name and on behalf of the Company, this Agreement and each of the Investment
Documents to which the Company is or is to become a party, and the stock
certificates evidencing the Preferred Shares, and the Warrant, and to give
notices and to take other action on behalf of the Company under each of such
documents.
7.8. Opinion of Company Counsel. Purchaser shall have received from
counsel to the Company, an opinion addressed to it, dated the Initial Closing
Date, substantially in the form attached hereto as Exhibit V, in a form
acceptable to Purchaser.
7.9. Investment Documents. The Company shall have executed and delivered
each of the Investment Documents.
7.10. Preferred Shares and Warrant. The Company shall have delivered to
Purchaser the duly executed Warrant and certificates representing the Preferred
Shares, being purchased by Purchaser at the Initial Closing.
7.11. Consent of Commerce Bank, N.A. The Purchaser shall have received a
written consent duly executed by Commerce Bank. N.A.
7.12. Legal Investment. At the time of the Initial Closing, the purchase
of the Securities shall be legally permitted by all laws and regulations to
which the Company is subject. Copies of all consents, approvals or permits from
appropriate authorities required under the state securities and blue-sky laws of
any jurisdiction shall have been delivered to Purchaser.
7.13. Qualifications. All pre-sale authorizations, approvals, consents,
permits, qualifications or registrations of any governmental authority,
regulatory body or third party that are required in connection with the lawful
issuance and sale of the Preferred Shares and Warrant pursuant to this
Agreement, the exercise of the Warrant or the issuance of any Warrant Shares
upon such exercise shall have been duly obtained and shall be effective on and
as of the Initial Closing Date, including, if necessary, permits from applicable
state securities authorities, qualifying the offer and sale of the Preferred
Shares and Warrant.
7.14. Proceedings and Documents. All corporate and other proceedings taken
by and all waivers and consents to be obtained by the Company in connection with
the transactions contemplated hereby and all documents and instruments incident
to such transactions shall be satisfactory in substance and form to Purchaser
whom shall have received all originals or certified copies of such documents it
may reasonably request.
7.15. Good Standing Certificates. The Company shall have delivered to
Purchaser a certificate of recent date from the Secretary of State of the State
of Delaware with respect to the Company's and each Subsidiary's due
incorporation, good standing, legal corporate existence, and due authorization
to conduct business and, certificates from the Secretary of State in each
jurisdiction in which the Company or any Subsidiary is required to be qualified
to do business with respect to the Company's or such Subsidiary's good standing
and due authorization to conduct business therein and payment of all
qualification fees.
39
7.16. Preemptive Rights. The Company shall have fully satisfied (including
with respect to rights of timely notification) or obtained enforceable waivers
in respect of any preemptive or similar rights directly or indirectly affecting
any of its Capital Stock or other securities.
7.17. No Material Adverse Change. There shall have occurred no material
adverse change in the Company's consolidated business or financial condition
since the date of the Company's most recent audited financial statements
contained on the Disclosure Documents.
7.18. Quotation. The Common Stock shall be quoted on the Pink Sheets.
7.19. Reserved Shares. The Company shall have authorized and reserved for
issuance upon exercise of the Warrant a number of shares of Common Stock equal
to not less than the Reserved Amount.
7.20. No Prohibition. There shall be no injunction, restraining order or
decree of any nature of any court or Government Authority of competent
jurisdiction that is in effect that restrains or prohibits the consummation of
the transactions contemplated hereby or by the other Investment Documents.
SECTION 8.
CONDITIONS TO INITIAL CLOSING OF COMPANY
The Company's obligation to effect the Initial Closing, including its
obligation to issue and sell the Preferred Shares and Warrant to be purchased at
the Initial Closing, is subject to the fulfillment to its satisfaction on or
prior to the Initial Closing Date of each of the following conditions:
8.1. Representations and Warranties. The representations and warranties
made by Purchaser pursuant to Section 5 hereof shall be true and correct in all
material respects when made and shall be true and correct in all material
respects on the Initial Closing Date.
8.2. Performance. All covenants, agreements and conditions contained in
this Agreement to be performed or complied with by Purchaser on or prior to the
Initial Closing Date shall have been so performed or complied with in all
material respects.
8.3. Investment Documents. Purchaser shall have executed and delivered
each of the Investment Documents.
8.4. Incumbency Certificate. The Company shall have received from
Purchaser an incumbency certificate, dated the Initial Closing Date, executed by
one or more duly authorized officers thereof and giving the names and bearing a
specimen signature of each individual who shall be authorized to sign, in the
name and on behalf of Purchaser, this Agreement and each of the Investment
Documents to which such Purchaser is or is to become a party.
40
SECTION 9.
CONDITIONS TO EACH ADDITIONAL CLOSING OF COMPANY AND PURCHASER
9.1. Conditions of Purchaser. The obligation of Purchaser to effect an
Additional Closing, including its obligation to purchase and pay for the
Preferred Shares to be issued at such Additional Closing, is subject to the
fulfillment to its satisfaction on or prior to such Additional Closing Date of
each of the following conditions:
(a) The Company shall be current and shall have timely filed with the
Commission all reports, schedules, registration statements and definitive proxy
statements that the Company is required to file with the Commission;
(b) The Company shall have been in compliance with the Budget (in
accordance with Section 6.25 hereof) for at least 6 months;
(c) The Company will have the right to request Purchaser to effect an
Additional Closing and purchase an additional number of Preferred Shares equal
to $125,000, for each quarter in which the Company's quarterly revenues for the
fiscal quarter immediately preceding it are of at least $1,500,000, and/or the
Company's average quarterly revenues for the two fiscal quarters immediately
preceding it are of at least $1,500,000. In the event that the Company should
not meet the $1,500,000 threshold in any fiscal quarter, but the average
quarterly revenues of this quarter and the fiscal quarter immediately following
it are of at least $1,500,000, then the Company will have the right to request
Purchaser to effect an Additional Closing and purchase an additional number of
Preferred Shares equal to $250,000. For the avoidance of doubt, the maximum
number of Preferred Shares purchased in the Additional Closings is set forth on
Schedule I (b).
(d) The representations and warranties made by the Company in Section 4
hereof shall be true and correct in all material respects as of each Additional
Closing Date, and with respect hereto, after giving effect to the sale and
issuance of the Preferred Shares;
(e) The Company shall have delivered to Purchaser a certificate, signed by
the Chief Executive Officer and Chief Financial Officer of the Company,
certifying that the conditions specified in this Section 9 have been fulfilled
as of the Additional Closing Date, it being understood that Purchaser may rely
on such certificate as though it were a representation and warranty of the
Company made herein;
(f) Purchaser shall have received from the Company an incumbency
certificate, dated the Additional Closing Date, executed by one or more duly
authorized officers thereof and giving the names and bearing a specimen
signature of each individual who shall be authorized to sign, in the name and on
behalf of the Company, the stock certificates evidencing the Preferred Shares
and to give notices and to take other action on behalf of the Company under each
of such documents;
(g) The Company shall have delivered to Purchaser the duly executed
certificates representing the Preferred Shares, being purchased by Purchaser at
the Additional Closing;
41
(h) At the time of the Additional Closing, the purchase of the Preferred
Shares shall be legally permitted by all laws and regulations to which the
Company is subject. Copies of all consents, approvals or permits from
appropriate authorities required under the state securities and blue-sky laws of
any jurisdiction shall have been delivered to Purchaser;
(i) All pre-sale authorizations, approvals, consents, permits,
qualifications or registrations of any governmental authority, regulatory body
or third party that are required in connection with the lawful issuance and sale
of the Preferred Shares shall have been duly obtained and shall be effective on
and as of the Additional Closing Date, including, if necessary, permits from
applicable state securities authorities, qualifying the offer and sale of the
Preferred Shares;
(j) The Company shall have delivered to Purchaser a certificate of recent
date from the Secretary of State of the State of Delaware with respect to the
Company's and each Subsidiary's due incorporation, good standing, legal
corporate existence, and due authorization to conduct business and, certificates
from the Secretary of State in each jurisdiction in which the Company or any
Subsidiary is required to be qualified to do business with respect to the
Company's or such Subsidiary's good standing and due authorization to conduct
business therein and payment of all qualification fees;
(k) The Company shall have fully satisfied (including with respect to
rights of timely notification) or obtained enforceable waivers in respect of any
preemptive or similar rights directly or indirectly affecting any of its Capital
Stock or other securities;
(l) There shall have occurred no material adverse change in the Company's
consolidated business or financial condition since the date of the Company's
most recent audited financial statements contained on the Disclosure Documents;
(m) The Common Stock shall be to be listed on the Over-the-Counter
Bulletin Board.
(n) There shall be no injunction, restraining order or decree of any
nature of any court or Government Authority of competent jurisdiction that is in
effect that restrains or prohibits the consummation of the transactions
contemplated hereby or by the other Investment Documents.
9.2. Conditions of Company. The Company's obligation to effect any
Additional Closing, including its obligation to issue and sell the Preferred
Shares to be purchased at such Additional Closing, is subject to the condition
that the representations and warranties made by Purchaser pursuant to Section 5
hereof be true and correct in all material respects when made and be true and
correct in all material respects on such Additional Closing Date.
SECTION 10.
MISCELLANEOUS
10.1. Governing Law. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of New York without
regards to its conflict of law principles. Each of the parties hereto
irrevocably consents to the jurisdiction and venue of any court within the State
of New York, in connection with any matter based upon or arising out of this
Agreement or the matters contemplated herein, agrees that process may be served
upon them in any manner authorized by the laws of the State of New York for such
persons.
42
10.2. Survival. The representations, warranties, covenants and indemnities
made by the parties herein and in the Investment Documents shall survive the
Initial Closing and each Additional Closing notwithstanding any due diligence
investigation made by or on behalf of the party seeking to rely thereon. In the
event that any provision of this Agreement becomes or is declared by a court of
competent jurisdiction to be illegal, unenforceable or void, this Agreement
shall continue in full force and effect without said provision; provided, that
in such case the parties shall negotiate in good faith to replace such provision
with a new provision which is not illegal, unenforceable or void, as long as
such new provision does not materially change the economic benefits of this
Agreement to the parties.
10.3. Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding upon
the Company and Purchaser and each other person who shall become a registered
holder of any Preferred Shares, the Warrant or any Warrant Shares, and, the
respective successors, assigns, heirs, executors and administrators of the
parties hereto; provided, however, that the Company may not assign its rights
hereunder. Purchaser may assign its rights under this Agreement without the
consent of the Company to (a) any parent or wholly owned subsidiary of Purchaser
or (b) any Affiliate of Purchaser that is, within the meaning of the Securities
Act, controlling, controlled by or under common control with Purchaser, in each
case at any time without the consent of the Company.
10.4. Entire Agreement; Amendment. This Agreement (including the Schedules
and Exhibits hereto) and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof and supersede all prior
arrangements or understandings with respect thereto. Except as otherwise
expressly provided herein, neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated, except by a written instrument signed
by the Company and Purchaser (or its successors or assigns).
10.5. Notices, etc. All notices, requests, consents and other
communications required or permitted hereunder shall be in writing and shall be
delivered either by hand, by messenger or by recognized overnight courier (with
signature required), or sent via facsimile, computer mail or other electronic
means from which a record may be created, addressed (a) if to Purchaser, as
indicated on Schedule I(a) hereof, or at such other address as Purchaser shall
have furnished to the Company in writing, with a copy to Brown Raysman LLP, 900
Third Avenue, New York, New York 10022, Attn: Joel M. Handel, Esq. or (b) if to
the Company, Datametrics Corporation, 1717 Diplomacy Row, Orlando, FL 32809,
Attn: Daniel Bertram, Fax: (407) 251-4588, or at such other address as the
Company shall have furnished to Purchaser in writing, with a copy to McLaughlin
& Stern LLP, 260 Madison Avenue, New York, NY 10017, Attn: Steven Schuster, Esq.
All notices and other communications given or made pursuant to this Agreement
shall be deemed effectively given when actually received or when receipt is
refused, it being understood by the parties that a confirmation of receipt for
the addressee provided by a recognized overnight courier service shall
constitute actual receipt by such addressee for purposes of such notice.
43
10.6. Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any holder of any Securities upon any breach or
default of the Company under this Agreement or any of the other Investment
Documents, shall impair any such right, power or remedy of such holder nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any holder of any
breach or default under this Agreement, or any waiver on the part of any holder
of any provisions or conditions of this Agreement must be made in writing and
shall be effective only to the extent specifically set forth in such writing.
All remedies, either under this Agreement or any of the other Investment
Documents or by law or otherwise afforded to any holder, shall be cumulative and
not alternative; provided, however, that any rights of Purchaser under Section
10.10 shall be the only remedies available to Purchaser arising from the
untruth, inaccuracy or breach (or any facts or circumstances constituting such
untruth, inaccuracy or breach) of any representations, warranties or agreements
of the Company and any of its subsidiaries.
10.7. Fees and Expenses. The Company shall bear its own expenses and legal
fees incurred on its behalf with respect to this Agreement and the transactions
contemplated hereby, whether or not a closing takes place. On the Initial
Closing Date, the Company will pay the reasonable legal fees and out-of-pocket
expenses of Purchaser and counsel to Purchaser with respect to this Agreement,
the other Investment Documents and the transactions contemplated hereby. The
Company shall also pay the reasonable legal fees and the fees of such counsel,
expert or consultant engaged by Purchaser incurred with respect to the
enforcement of any of the Investment Documents or with respect to responding to
any request made by the Company for the consent of Purchaser to any action that
the Company wishes to take that is either barred under terms of any Investment
Document or requires the consent of Purchaser therefor.
10.8. Exchanges: Lost, Stolen or Mutilated Certificates. Upon surrender by
Purchaser to the Company of Preferred Shares, Warrant or Warrant Shares
purchased or acquired by Purchaser hereunder, the Company at its expense will
issue in exchange therefor, and deliver to Purchaser, a new certificate or
certificates representing such securities in such denomination or denominations
as may be requested by such party. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of any certificate
representing any Preferred Shares, Warrant or Warrant Shares, and in case of any
such loss, theft or destruction, upon delivery of any indemnity agreement
satisfactory to the Company, or in case of any such mutilation, upon surrender
and cancellation of such certificate, the Company at its expense will issue and
deliver to such party a new certificate for such Warrant, Warrant Shares or
Preferred Shares in lieu of such lost, stolen or mutilated certificate.
10.9. Indemnification. The Company with respect to the representations,
warranties and agreements made by the Company herein shall indemnify, defend and
hold Purchaser harmless against all liability, loss or damage, together with all
reasonable costs and expenses related thereto (including reasonable legal and
accounting fees and expenses), arising from the untruth, inaccuracy or breach
(or any facts or circumstances constituting such untruth, inaccuracy or breach)
of any such representations, warranties or agreements of the Company and any of
its subsidiaries; provided, however, that the Company's indemnity obligation
contained in this Section 10.9 shall not apply to amounts paid in settlement of
any such liabilities, losses or damages if such settlement is effected without
the consent of the Company (which consent shall not be unreasonably withheld).
44
10.10. Remedies.
(a) In case any one or more of the warranties or covenants set forth in
this Agreement shall have been breached by any party or any representation given
by any party shall be untrue in breach of this Agreement, the non-breaching
party may proceed to protect and enforce their rights either by suit in equity
or by action at law, including, but not limited to, an action for damages as a
result of any such breach or an action for specific performance of any such
covenant contained in this Agreement. The non-breaching parties acting pursuant
to this Section 10.10 shall be indemnified against all liability, loss or
damage, together with all reasonable costs and expenses related thereto
(including reasonable legal and accounting fees and expenses) in accordance with
this Section 10.10; provided, however, that the breaching party's indemnity
obligation contained in this Section 10.10 shall not apply to amounts paid in
settlement of any such liabilities, losses or damages if such settlement is
effected without the consent of the breaching party (which consent shall not be
unreasonably withheld).
(b) Promptly after receipt by an indemnified party of notice of the
commencement of any action involving a claim referred to in either Section 10.9
or Section 10.10 (a), such indemnified party will, if a claim in respect thereof
is made against an indemnifying party, give written notice to the latter of the
commencement of such action. In case any such action is brought against an
indemnified party, the indemnifying party will be entitled to participate in and
assume the defense thereof, jointly with any other indemnifying party similarly
notified to the extent that it may wish, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be responsible for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof; provided, however, that if any indemnified party shall have reasonably
concluded that there are one or more legal or equitable defenses available to
such indemnified party which actually conflict with those available to the
indemnifying party, the indemnifying party shall not have the right to assume
the defense of such action on behalf of such indemnified party and such
indemnifying party shall reimburse such indemnified party and any Person
controlling such indemnified party for that portion of the reasonable fees and
expenses of one counsel retained by the indemnified party which is reasonably
related to the matters covered by the indemnity agreement provided in Section
10.9 and Section 10.10 (a). With the prior written consent of the indemnified
party, the indemnifying party may effect any settlement, compromise or consent
to the entry of judgment in any pending or threatened action, suit or proceeding
in respect of which any indemnified party is or could have been a party and
indemnity was or could have been sought hereunder by such indemnified party,
provided, however, that the indemnifying party may effect any such settlement,
compromise or consent without the consent of the indemnified party if such
settlement, compromise or consent includes: (i) an unconditional release of such
indemnified party from all liability, claims or other damages that are the
subject matter of such action, suit or proceeding; and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act by or
on behalf of any indemnified party. If and to the extent that the indemnifying
party conducts, controls or participates in the defense or settlement of any
claim, the indemnified party will give the indemnifying party and its counsel,
during normal business hours, access to the relevant business records and other
materials and information, including copies thereof, and will permit the
indemnifying party and its representatives to consult with the employees,
officers, directors, advisors, representatives of any indemnified party, and
counsel of the indemnified party, all as necessary or advisable in connection
with the defense or settlement of such claim.
45
10.11. Titles and Subtitles. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
10.12. Counterparts; Facsimiles. This Agreement, and the other Investment
Documents, may be executed in any number of counterparts, each of which when so
executed and delivered shall constitute a complete and original instrument but
all of which together shall constitute one and the same agreement
(notwithstanding that all of the parties are not signatories to the original or
the same counterpart, or that signature pages from different counterparts are
combined), and it shall not be necessary when making proof of this Agreement or
any counterpart thereof to account for any other counterpart, and the signature
of any party to any counterpart shall be deemed to be a signature to and may be
appended to any other counterpart. For purposes of this Agreement, and the other
Investment Documents, a document (or signature page thereto) signed and
transmitted by facsimile machine or telecopier is to be treated as an original
document. The signature of any party on any such document, for purposes hereof
and thereof, is to be considered as an original signature, and the document
transmitted is to be considered to have the same binding effect as an original
signature on an original document. At the request of any party, any facsimile or
telecopy document is to be re-executed in original form by the parties that
executed the facsimile or telecopy document. No party may raise the use of a
facsimile machine or telecopier or the fact that any signature was transmitted
through the use of a facsimile or telecopier machine as a defense to the
enforcement of this Agreement or any other Investment Document.
10.13. No Strict Construction. The parties hereto have participated
jointly in the negotiation and drafting of this Agreement and the other
Investment Documents. In the event an ambiguity or question of intent or
interpretation arises under any provision of this Agreement or any Investment
Document, this Agreement or such other Investment Document shall be construed as
if drafted jointly by the parties thereto, and no presumption or burden of proof
shall arise favoring or disfavoring any party by virtue of the authorship of any
of the provisions of this Agreement or any other Investment Document.
46
10.14. Rules of Usage. In this Agreement, unless a clear intention appears
otherwise: (a) the singular number includes the plural number and vice versa;
(b) reference to any Person includes such Person's successors and assigns but,
if applicable, only if such successors and assigns are not prohibited by this
Agreement, and reference to a Person in a particular capacity excludes such
Person in any other capacity or individually; (c) reference to any gender
includes each other gender; (d) reference to any agreement, document or
instrument means such agreement, document or instrument as amended or modified
and in effect from time to time in accordance with the terms thereof; (e)
reference to any law means such law as amended, modified, codified, replaced or
reenacted, in whole or in part, and in effect from time to time, including rules
and regulations promulgated thereunder; (f) "hereunder," "hereof," "hereto," and
words of similar import shall be deemed references to this Agreement as a whole
and not to any particular Section or other provision hereof; (g) "including"
(and with correlative meaning "include") means including without limiting the
generality of any description preceding such term; (h) "or" is used in the
inclusive sense of "and/or"; (i) with respect to the determination of any period
of time, "from" means "from and including" and "to" means "to but excluding";
(j) references to documents, instruments or agreements shall be deemed to refer
as well to all addenda, exhibits, schedules or amendments thereto; (k) article
and section headings herein are for convenience only and shall not affect the
construction hereof; and (1) references to any sections of this Agreement shall
include every subsection thereof unless otherwise expressly excluded.
[Signature Page Follows]
47
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed and delivered this Agreement as of the date first
above written.
DATAMETRICS CORPORATION
By: /s/ Daniel Bertram
--------------------
Name: Daniel Bertram
Title: Chief Executive Officer
SG DMTI Capital LLC
By: SG Phoenix Ventures LLC
its Managing Member
By: /s/ Philip S. Sassower
-----------------------
Name: Philip S. Sassower
Title: Member
By: /s/ Andrea Goren
----------------
Name: Andrea Goren
Title: Member
48
Schedule I(a)
Series B
Name and Address Preferred Shares Warrant Investment
- ---------------- ---------------- ------- ----------
SG DMTI Capital LLC 500,000 386,314,860 $500,000.00
- --------------------------------------------------------------------------------
Schedule I(b)
Series B
Name and Address Preferred Shares Investment
- ---------------- ---------------- ----------
SG DMTI Capital LLC 500,000 $500,000.00
49
Schedule II
Schedule of Exceptions/Disclosures
4.1 Organization and Standing; Amended Certificate and Bylaws
The Company is currently delinquent in the payment of its franchise taxes
in Delaware for the years 2003 and 2004. The estimated payments of these taxes
are $34,000 per year.
The Company is qualified in Florida under the name Datametrics Technology
Systems Corporation, an assumed name.
4.2 Subsidiaries.
None
4.5 SEC Documents; Agreements; Financial Statements; Other Information
The Company filed the following reports with the SEC, however, such
reports were not filed timely:
1. 10KSB for the year ended October 31, 2003 filed on September 30,
2005.
2. 10QSB for the quarter ended January 31, 2004 filed on October 25,
2005.
3. 10QSB for the quarter ended April 30, 2004 filed on November 18,
2005 and amended on 11/28/2005.
4. 10QSB for the quarter ended July 31, 2004 filed on November 30,
2005.
The Company has not filed reports with the SEC for the following periods:
1. 10KSB for the year ended October 31, 2004.
2. 10QSB for the quarter ended January 31, 2005.
3. 10QSB for the quarter ended April 30, 2005.
4. 10QSB for the quarter ended July 31, 2005.
4.6 Capitalization
(a) Preemptive Rights
None
50
(b) Shares Issued Pursuant to Stock Plan
None
4.7 Contracts
1. Lease Agreement between the Company, as tenant, and SG DMTI LLC, as
landlord, dated as of November 1, 2005.
2. Sublease Agreement between the Company, as sublessor and Fabricore
Florida, Inc., as subtenant, dated as of November 17, 2005.
3. Loan documents by and between the Company and DMTR, LLC, as assigned to
Commerce Bank (to be terminated at the Initial Closing).
4.8 Financial Information/Taxes
(a) As set forth above, the Company is delinquent in the payment of its
Delaware franchise taxes for the years 2003 and 2004. The estimated payments of
these taxes are $34,000 per year.
(c) None
4.9 Absence of Certain Changes
1. Sublease Agreement between the Company, as sublessor, and Fabricore
Florida, Inc., as subtenant, dated as of November 17, 2005.
4.10 Litigation
None.
4.11 Title to Properties; Liens and Encumbrances
The Company does not own any real property. The lien in favor of DMTR will
be terminated at closing.
4.12 Leases
Pursuant to the Lease Agreement dated as of November 1, 2005 between SG
DMTI, LLC, as landlord, and the Company, as tenant, the Company leases its
headquarters at 1717 Diplomacy Row, Orlando, Florida. The lease runs for a
period of five (5) years with an option to renew. The annual base rent is
$150,000.00 ($12,500/month). As set forth above, the Company subleases a portion
of the property (8,038 of the approximately 43,500 square feet) for base rent of
$4,688.83/month.
51
4.14 Intellectual Property
None.
4.19 Offering
None.
4.21 Employees
None/Not Applicable
4.23 Merger/Sale Discussions
None.
4.26 Environmental, Safety and Health Laws
None.
52
Exhibit I
Certificate of Designations, Preferences and Rights of Series B Preferred Stock
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS OF SERIES B PREFERRED STOCK
OF DATAMETRICS CORPORATION
DATAMETRICS CORPORATION, a Delaware corporation (the "Corporation"),
hereby certifies that pursuant to the authority contained in its Certificate of
Incorporation, and in accordance with Section 151 of the General Corporation Law
of the State of Delaware (the "Delaware General Corporation Law"), its Board of
Directors has adopted the following resolution:
RESOLVED, that a series of Preferred Stock of the Corporation, to be
designated "Series B Preferred Stock" be, and hereby is, created, the
Series B Preferred Stock to consist of 1,500,000 shares, of which the
preferences and relative participating, optional and other rights, and the
qualifications, limitations, or restrictions of such preferences and
rights, are as set forth in the Certificate of Designations, Preferences
and Rights of Series B Cumulative Redeemable Preferred Stock, in
substantially the form, and containing substantially the terms, of the
draft thereof attached hereto as Exhibit A (the "Certificate of
Designations") and incorporated herein by reference, such Certificate of
Designations being deemed to have been set forth herein in its entirety by
reference hereto.
The qualifications, limitations or restrictions of such preferences and
rights of such Series B Preferred Stock are as follows:
Section 1. Definitions.
Board of Directors. The term "Board of Directors" shall mean the Board of
Directors of the Corporation.
Business Day. The term "Business Day" shall mean any day, other than a
Saturday or Sunday or a day on which banks in the State of New York are
authorized or required by law, regulation or executive order to close.
Capital Stock. The term "Capital Stock" shall mean (i) the authorized
shares of the Company's capital stock, including all classes of common,
preferred, voting and nonvoting capital stock, (ii) any rights, options or
warrants to purchase any capital stock (including all classes of common,
preferred, voting and nonvoting capital stock) of the Company, and (iii)
securities of any type whatsoever that are, or may become, convertible into or
exercisable or exchangeable for, or that carry or may carry rights to subscribe
for, any capital stock (including all classes of common, preferred, voting and
nonvoting capital stock) of the Company, including options and warrants.
53
Common Stock. The term "Common Stock" shall mean (a) all classes of the
common stock of the Company, (b) any other Capital Stock of the Company, however
designated, authorized on or after the date hereof, which shall neither be
limited to a fixed sum or percentage of par value in respect of the rights of
the holders thereof to participate in dividends nor entitled to a preference in
the distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company and (c) any other securities into which
or for which any of the securities described in clause (a) or (b) may be
converted or exchanged pursuant to a plan of recapitalization, reorganization,
merger, consolidation, sale of assets or other similar transaction.
Dividend Payment Date. The term "Dividend Payment Date" shall have the
meaning set forth in Section 3 hereof
Dividend Period. The term "Dividend Period" shall mean the period from,
and including, the Initial Issue Date to, but not including, the first Dividend
Payment Date, and thereafter each quarterly period from, and including, the
Dividend Payment Date to, but not including, the next Dividend Payment Date (or
earlier date on which dividends are paid).
Initial Issue Date. The term "Initial Issue Date" shall mean the date that
shares of Series B Preferred Stock are first issued by the Corporation.
Liquidation. The term "Liquidation" shall mean (i) any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, (ii) the
merger or consolidation of the Corporation with or into any other corporation,
partnership or entity in which the stockholders of the Corporation receive cash
or securities in complete exchange for the Capital Stock of the Corporation then
held by them and the shareholders of the Corporation immediately prior to such
event of Liquidation do not own a majority of the outstanding shares of voting
stock of the surviving Person or (iii) a distribution of property or funds from
the Corporation to its stockholders in connection with the sale of all or
substantially all of the assets of the Corporation.
Liquidation Preference Amount. The term "Liquidation Preference Amount"
shall have the meaning set forth in Section 2 hereof
Person. The term "Person" (or "Persons" as the context may require) means
an individual, a corporation, a partnership, limited liability company, a firm,
a joint venture, an association, a trust, an unincorporated organization, a
government, foreign or domestic, or any agency or political subdivision thereof
or any other entity engaging in commercial activities.
Preferred Stock. The term "Preferred Stock" shall mean the Capital Stock
of the Corporation issued from time to time by the Corporation and designated as
Preferred Stock of the Corporation in its Certificate of Incorporation or a
certificate of designation adopted and filed pursuant to Section 151 of the
Delaware General Corporation Law.
54
Record Date. The term "Record Date" shall mean, for any class or series of
Capital Stock, the date designated by the Board of Directors at the time a
dividend is declared as the date for determining holders of record entitled to
such dividend; provided, however, that such Record Date shall be the first day
of the calendar month in which the applicable Dividend Payment Date falls or
such other date designated by the Board of Directors for the payment of
dividends that is not more than thirty (30) days nor less than ten (10) days
prior to such Dividend Payment Date.
Section 2. Designation and Amount. There shall be a series of Preferred
Stock of the Corporation designated as "Series B Preferred Stock", par value
$.001 per share, and the number of shares constituting such series shall be
1,500,000. The Series B Preferred Stock shall entitle the holder thereof to
exercise the voting rights, to participate in the distribution and to have the
benefits as set forth herein and in the Certificate of Incorporation of the
Corporation and as required by applicable law. The liquidation preference amount
("Liquidation Preference Amount") of each share of Series B Preferred Stock
shall be $1.50.
Section 3. Dividends and Distributions.
(a) Dividends shall accrue and be cumulative on each share of Series B
Preferred Stock from the Initial Issue Date. The holders of Series B Preferred
Stock shall be entitled to receive, before any dividend shall be declared and
paid upon or set aside for any other Capital Stock, dividends payable in cash or
Common Stock of the Corporation, at the option of the Corporation, at the rate
per annum per share equal to four percent (4%) and the Board of Directors shall
declare and cause such dividends to be paid out of funds legally available for
such purpose, and no more, payable in annual payments on the last day of
November in each year (each a "Dividend Payment Date"), unless such day is not a
Business Day, in which case on the next Business Day, commencing on November 30,
2006, to holders of record as they appear on the stock transfer books of the
Corporation on the applicable Record Date. Dividends payable on the Series B
Preferred Stock for all periods, including any period less than a full quarter,
shall be computed on the basis of a 365 or 366 day year, as the case may be, and
paid for the actual number of days elapsed.
(b) Dividends on shares of Series B Preferred Stock shall be cumulative
from the Initial Issue Date (whether or not there shall be net profits or assets
of the Corporation legally available for the payment of such dividends), so that
if at any time dividends upon shares of Series B Preferred Stock shall not have
been paid or declared and a sum sufficient for payment thereof set apart, the
amount of the deficiency in such dividends shall be fully paid or dividends in
such amount shall be declared on the shares of Series B Preferred Stock and a
sum sufficient for the payment thereof shall be set apart for such payment,
before any dividend shall be declared or paid or any other distribution ordered
or made upon any other Capital Stock and before any sum or sums shall be set
aside for or applied to the purchase, redemption, other retirement or
acquisition of any other Capital Stock. All dividends declared upon the Series B
Preferred Stock shall be declared pro rate per share. All payments due under
this Section 3 to any holders of shares of Series B Preferred Stock shall be
made to the nearest cent. So long as there exist any accrued dividends, the
Corporation shall not pay or declare any dividends on or make or set aside any
other distribution on any other Capital Stock.
55
Section 4. Liquidation Preference Amount.
(a) In the event of any Liquidation, each holder of an outstanding share
of Series B Preferred Stock shall be entitled to receive, and be paid out of the
assets of the Corporation available for distribution to its stockholders (in
cash, if available), after payment or provision of payment of all debts and
other liabilities of the Corporation, whether from capital, surplus or earnings,
the Liquidation Preference Amount, plus all accumulated and unpaid dividends on
such share to the date of final distribution to the holder of such share,
regardless of whether declared, and no more, before any payment shall be made or
any assets distributed (i) to the holders of any Capital Stock ranking junior
(either as to dividends or upon Liquidation) to the Series B Preferred Stock, or
(ii) to the holders of any Capital Stock ranking on parity (either as to
dividends or upon Liquidation) with the Series B Preferred Stock, except
distributions made ratably on the Series B Preferred Stock and all other such
parity Stock in proportion to the total amounts to which the holders of all such
Series B Preferred Stock are entitled upon Liquidation.
(b) If, upon any Liquidation of the Corporation, the assets of the
Corporation, or the proceeds thereof, to be distributed to its stockholders
shall be insufficient to pay all the holders of the outstanding shares of the
Series B Preferred Stock the Liquidation Preference Amount of all such
outstanding shares plus all accumulated and unpaid dividends on all such shares
to the date of the final distribution to the holders thereof, then such lesser
amounts shall be distributed ratably among the holders of the outstanding shares
of Series B Preferred Stock based on the amounts they would otherwise be
entitled to receive in such Liquidation were payment to be made in full, and no
distributions shall be made to the holders of any Capital Stock upon such
Liquidation. After payment in full of the Liquidation Preference Amount and any
accumulated and unpaid dividends in respect of the Series B Preferred Stock upon
Liquidation, the holders of such shares in their capacity as such shall not be
entitled to any further right or claim to the remaining assets of the
Corporation.
Section 5. Voting Rights and Board Representation.
(a) The Corporation shall not, and shall cause its subsidiaries not to,
without the prior consent or affirmative vote of the holders of a majority of
the shares of the Series B Preferred Stock outstanding at the time, given in
person or by proxy, either in writing or at a meeting (such Series B Preferred
Stock voting separately as a class):
(A) authorize, designate or issue, whether by reclassification or
otherwise, any security ranking senior, equal or junior to the Series B
Preferred Stock in right of redemption, liquidation, voting or dividends,
whether by amendment to its Certificate of Incorporation, certificates of
designation or otherwise;
56
(B) enter into any transaction or agreement with affiliates on terms
more favorable to the Corporation than it would obtain in a transaction between
unrelated parties;
(C) incur indebtedness for borrowed money from banks, insurance
companies or other financing institutions in excess of $100,000 other than
indebtedness contemplated in a budget approved by the Board of Directors,
(D) make any material change in the nature of its business as
carried on at the date hereof or as contemplated in the annual business plan as
approved by the Board of Directors;
(E) amend, alter or repeal any provision of its Certificate of
Incorporation or Bylaws that alters or changes the voting or other powers,
preferences, or other rights appurtenant to the Series B Preferred Stock,
whether by merger, consolidation or otherwise;
(F) become obligated to make expenditures in excess of $50,000
except in the ordinary course of business or pursuant to a budget approved by
the Board of Directors;
(G) merge, consolidate, liquidate, wind up or dissolve itself or
convey, sell, lease, transfer or otherwise dispose of, in one transaction or a
series of transactions, all or any part of the business, properties or fixed
assets of the Corporation, or any subsidiary, or acquire by purchase all or
substantially all of the business, properties or fixed assets of, or stock in
any business;
(H) declare or pay any dividends, return any capital or make any
distribution of assets to its stockholders except for a stock split;
(I) redeem or repurchase any outstanding stock or warrants;
(J) increase the number of shares reserved under any plan adopted by
the Corporation for issuance of equity to employees, non-employee directors and
consultants; and (K) appoint, hire, remove or change any executive officer of
the Corporation.
(b) The Corporation shall not amend, alter or repeal the provisions of
this Certificate, whether by merger, consolidation or otherwise, so as to
adversely affect any right, preference, privilege or voting power of the Series
B Preferred Stock or the holders thereof.
(c) The Preferred Series B, as a class, shall be entitled to the right to
appoint two (2) members to the Board of Directors of the Corporation.
Section 6. Ranking.
57
The Series B Preferred Stock shall, with respect to dividend rights and
distributions upon Liquidation, rank (i) senior to the Capital Stock, issued
from time to time by the Corporation. other than any series of Capital Stock the
terms of which specifically provide that the Capital Stock of such series ranks
on parity with the Series B Preferred Stock with respect to dividend rights and
distribution upon Liquidation, and (ii) on parity with the Capital Stock, issued
from time to time by the Corporation. the terms of which specifically provide
that the shares of such Capital Stock rank on parity with the Series B Preferred
Stock with respect to dividend rights and distributions upon Liquidation. The
Corporation shall not issue any Capital Stock the terms of which specifically
provide that the shares of such Capital Stock rank senior or on a parity to the
Series B Preferred Stock with respect to dividend rights or distributions upon
Liquidation, unless the issuance of such Capital Stock has been approved by the
holders of Series B Preferred Stock as provided in Section 5. The Corporation
shall not issue any Capital Stock to any of the holders of Capital Stock (other
than the Series B Preferred Stock) issued by the Corporation on the Initial
Issue Date unless the terms of such Capital Stock specifically provide that the
shares of Series B Preferred Stock rank senior to such shares of Capital Stock
with respect to dividend rights and distributions upon Liquidation and unless
the issuance of such Capital Stock has been approved by the holders of Series B
Preferred Stock as provided in Section 5.
Section 7. Certain Restrictions. Neither the Corporation nor any of its
subsidiaries shall declare or pay any dividends on the Corporation's Common
Stock during any period in which there are outstanding accrued and unpaid
dividends on the Series B Preferred Stock.
58
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designations, Preferences and Rights of its Series B Preferred Stock to be duly
executed as of this __ day of December 2005.
DATAMETRICS CORPORATION
By:
----------------------
Name:
Title:
59
Exhibit II
Common Stock Purchase Warrant
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED OR PLEDGED BY ANY PERSON, UNLESS (1) EITHER (A) A REGISTRATION WITH
RESPECT THERETO SHALL BE EFFECTIVE UNDER THE SECURITIES ACT, OR (B) THE
CORPORATION SHALL HAVE RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE
CORPORATION THAT AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT IS
AVAILABLE, AND (2) THERE SHALL HAVE BEEN COMPLIANCE WITH ALL APPLICABLE STATE
SECURITIES OR "BLUE SKY" LAWS.
DATAMETRICS CORPORATION
COMMON STOCK PURCHASE WARRANT
December 30, 2005
Datametrics Corporation, a Delaware corporation (the "Corporation"),
hereby certifies that, for value received, SG DMTI CAPITAL LLC or any subsequent
holder hereof (the "Holder"), is entitled, subject to the terms set forth below,
to purchase from the Corporation from time to time at or before 5:00 p.m. New
York City time on December 30, 2015 that number of fully paid and nonassessable
shares of Common Stock (the "Warrant Shares"), with a par value of $0.01 per
share, of the Corporation as is equal to the Warrant Number (as hereinafter
defined), at a purchase price per share of $0.01 (the "Purchase Price"). This
Warrant is subject to adjustment as provided herein.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term "Common Stock" includes (i) the Corporation's Common Stock,
with a par value of $0.01 per share, as authorized on the date hereof, (ii) any
other capital stock of any class or classes (however designated) of the
Corporation, authorized on or after such date, the holders of which shall have
the right, without limitation as to amount per share, either to all or to a
share of the balance of current dividends and liquidating distributions after
the payment of dividends and distributions on any shares entitled to preference
in the payment thereof, and (iii) any other securities into which or for which
any of the securities described in (i) or (ii) above may be converted or
exchanged pursuant to a plan of recapitalization, reorganization, merger, sale
of assets or otherwise.
(b) The term "Corporation" shall include Datametrics Corporation, and any
corporation that shall succeed to, or assume the obligations of, the Corporation
hereunder.
(c) The term "Other Securities" refers to any class of stock (other than
Common Stock) and other securities of the Corporation or any other person
(corporate or otherwise) which the Holder at any time shall be entitled to
receive, or shall have received, on the exercise of this Warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 5 or otherwise.
60
(d) The term "Warrant Number" shall mean the number of shares of Common
Stock of the Corporation for which this Warrant may be exercised, which
initially is 386,314,860 and is subject to adjustment as provided hereof.
1. Exercise of Warrant.
1.1 Exercise. This Warrant may be exercised at any time and from
time to time, in whole or in part, by the Holder by surrender of this
Warrant, with the form of subscription at the end hereof duly executed by
the Holder, to the Corporation at its principal office, accompanied by
payment, in U.S. dollars, via wire transfer or by certified or official
bank check payable to the order of the Corporation, in the amount obtained
by multiplying the number of shares of Common Stock designated by the
Holder in the subscription at the end hereof by the Purchase Price. On any
such partial exercise, the Corporation at its expense will forthwith issue
and deliver to or upon the order of the Holder a new Warrant or Warrants
of like tenor, or by such other means as permitted hereby, in the name of
the Holder or as the Holder (upon payment by the Holder of any applicable
transfer taxes) may request, calling in the aggregate on the face or faces
thereof for the number of shares of Common Stock for which such Warrant or
Warrants may still be exercised.
1.2 Payment by Surrender of Notes. Notwithstanding the payment
provisions of Section 1.1, all or part of the payment due upon exercise of
this Warrant in full or in part may be made by the surrender by the Holder
to the Corporation of any promissory notes or other obligations issued by
the Corporation. All payments hereunder by Holder will first applied to
reduce any unpaid interest that is due on such notes and obligations and
then to reduce the principal amount thereof. Such notes and obligations so
surrendered shall be credited against such payment in an amount equal to
the principal amount thereof plus premium (if any) and accrued interest to
the date of surrender; provided, however, that the Holder may exercise
this Warrant via fax delivery to the Corporation, so long as the original
of the applicable promissory notes are delivered to the Corporation within
three business days thereafter.
1.3 Corporation Acknowledgment. The Corporation will, at the time of
the exercise of this Warrant, upon the request of the Holder acknowledge
in writing its continuing obligation to afford to the Holder any rights to
which the Holder shall continue to be entitled after such exercise in
accordance with the provisions of this Warrant. If the Holder shall fail
to make any such request, such failure shall not affect the continuing
obligation of the Corporation to afford to the Holder any such rights.
1.4 Trustee for the Holder. In the event that a bank or trust
company shall have been appointed as trustee for the Holder, such bank or
trust company shall have all the powers and duties of a warrant agent
appointed pursuant to Section 14 and shall accept, in its own name for the
account of the Corporation or such successor person as may be entitled
thereto, all amounts otherwise payable to the Corporation or such
successor, as the case may be, on exercise of this Warrant pursuant to
this Section 1.
61
2. Delivery of Stock Certificates, etc. on Exercise. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within ten (10) days thereafter (and three (3) days if the Corporation is
publicly owned at such time), the Corporation at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the Holder, or as the Holder (upon payment by the Holder of
any applicable transfer taxes) may direct, a certificate or certificates for the
number of fully paid and nonassessable shares of Common Stock (or Other
Securities) to which the Holder shall be entitled on such exercise, plus, in
lieu of any fractional share to which the Holder would otherwise be entitled,
cash equal to such fraction multiplied by the then current market value of one
full share, together with any other stock or other securities and property
(including cash, where applicable) to which the Holder is entitled upon such
exercise pursuant to Section 1 or otherwise. In the event the certificate is not
delivered within the time stated herein, the Corporation shall incur a per diem
penalty equal to fifteen percent (15%) per annum of the fair market amount of
the stock sought to be exercised.
3. Adjustment for Dividends in Other Stock, Property, etc.;
Reclassification, etc. In case at any time or from time to time, the holders of
Common Stock (or Other Securities) in their capacity as such shall have
received, or (on or after the record date fixed for the determination of
shareholders eligible to receive) shall have become entitled to receive, without
payment therefor,
(a) other or additional stock or other securities or property (other
than cash) by way of dividend, or
(b) any cash (excluding cash dividends payable solely out of
earnings or earned surplus of the Corporation), or
(c) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate
rearrangement,
other than additional shares of Common Stock (or Other Securities) issued as a
stock dividend or in a stock-split, adjustments in respect of which are provided
for in Section 5.3, then and in each such case the Holder, on the exercise
hereof as provided in Section 1, shall be entitled to receive the amount of
stock and other securities and property (including cash in the cases referred to
in subdivisions (b) and (c) of this Section 3) which Holder would hold on the
date of such exercise if on the date hereof it had been the holder of record of
the maximum number of Warrant Shares issuable upon the exercise of this Warrant
and had thereafter, during the period from the date hereof to and including the
date of such exercise, retained such shares and all such other or additional
stock and other securities and property (including cash in the cases referred to
in subdivisions (b) and (c) of this Section 3) receivable by him as aforesaid
during such period, giving effect to all adjustments called for during such
period by Sections 4 and 5.
62
4. Adjustment for Reorganization, Consolidation, Merger, etc.
4.1 Reorganization, Consolidation, Merger, etc. In case at any time or
from time to time, the Corporation shall (a) effect a reorganization, (b)
consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Corporation, then, in each
such case, the Holder, on the exercise hereof as provided in Section 1 at any
time after the consummation of such reorganization, consolidation or merger or
the effective date of such dissolution, as the case may be, shall receive, in
lieu of the Common Stock (or Other Securities) issuable on such exercise prior
to such consummation or such effective date, the stock and other securities and
property (including cash) to which the Holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if the
Holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustments as provided in Sections 3, 4 and 5. The Corporation hereby
covenants that any purchaser of all or substantially all of the Corporation's
assets must affirmatively assume this Warrant as well.
4.2 Dissolution. In the event of any dissolution of the Corporation
following the transfer of all or substantially all of its properties or assets,
the Corporation, prior to such dissolution, shall at its expense deliver or
cause to be delivered the stock and other securities and property (including
cash, where applicable) receivable by Holder after the effective date of such
dissolution pursuant to this Section 4 to the Holder or its designated
representative.
4.3 Continuation of Terms. Upon any reorganization, consolidation, merger,
or transfer (and any dissolution following any transfer) referred to in this
Section 4, this Warrant shall continue in full force and effect and the terms
hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant, after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Corporation, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 6.
5. Anti-Dilution Adjustment.
5.1 General. The Warrant Number shall be subject to adjustment from time
to time as hereinafter provided.
5.2 Dividends of Common Stock, Options or Convertible Securities. In the
event that the Corporation shall declare a dividend or make any other
distribution upon any stock of the Corporation payable in Common Stock, Options
or Convertible Securities, any Common Stock, Options or Convertible Securities,
as the case may be, issuable in payment of such dividend or distribution shall
be deemed to have been issued or sold without consideration; provided, however,
that this Section 5.2 shall not apply to a stock split of the Common Stock
payable in the form of a dividend, for which event adjustment shall be made
pursuant to Section 5.3.
63
5.3 Stock Splits and Reverse Splits. In the event that the Corporation
shall at any time either subdivide its outstanding shares of Common Stock into a
greater number of shares or effect a stock split of its Common Stock payable in
the form of a dividend, the Purchase Price in effect immediately prior to such
subdivision shall be proportionately reduced and the Warrant Number purchasable
pursuant to this Warrant immediately prior to such subdivision shall be
proportionately increased, and conversely, in the event that the outstanding
shares of Common Stock of the Corporation shall at any time be combined into a
smaller number of shares, the Purchase Price in effect immediately prior to such
combination shall be proportionately increased and the Warrant Number in effect
immediately prior to such combination shall be proportionately reduced. Except
as provided in this subsection 5.3 no adjustment in the Purchase Price and no
change in the Warrant Number shall be made under this Section 5 as a result of
or by reason of any such subdivision or combination.
5.4 Record Date as Date of Issue or Sale. In the event that at any time
the Corporation shall take a record of the holders of its Common Stock for the
purpose of entitling them (i) to receive a dividend or other distribution
payable in Common Stock, Options or Convertible Securities, or (ii) to subscribe
for or purchase Common Stock, Options or Convertible Securities, then such
record date shall be deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of the granting of
such right of subscription or purchase, as the case may be.
5.5 Treasury Stock. The number of shares of Common Stock outstanding at
any given time shall not include shares owned or held by or for the account of
the Corporation, and the disposition of any such shares (other than their
cancellation without reissuance) shall be considered an issue or sale of Common
Stock for the purposes of this Section 5.
6. No Dilution or Impairment. The Corporation will not, by amendment of
its Restated Certificate of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
Holder against dilution or other impairment. Without limiting the generality of
the foregoing, the Corporation (a) will not increase the par value or stated
value of any shares of stock receivable on the exercise of this Warrant above
the amount payable therefor on such exercise, (b) will take all such action as
may be necessary or appropriate in order that the Corporation may validly and
legally issue fully paid and nonassessable shares of stock on the exercise of
this Warrant from time to time, and (c) will not transfer all or substantially
all of its properties and assets to any other person (corporate or otherwise),
or consolidate with or merge into any other person or permit any such person to
consolidate with or merge into the Corporation (if the Corporation is not the
surviving person), unless such other person shall expressly assume in writing
and become bound by all the terms of this Warrant.
64
7. Certificate as to Adjustments. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of this Warrant, the Corporation will promptly compute such adjustment
or readjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Corporation for
any additional shares of Common Stock (or Other Securities) issued or sold or
deemed to have been issued or sold, (b) the number of shares of Common Stock (or
Other Securities) outstanding or deemed to be outstanding, and (c) the Purchase
Price and the Warrant Number in effect immediately prior to such issue or sale
and as adjusted and readjusted as provided in this Warrant. The Corporation will
forthwith deliver a copy of such certificate to the Holder of this Warrant, and
will, on the written request at any time of the Holder of this Warrant, furnish
to such Holder a like certificate setting forth the Purchase Price and the
Warrant Number at the time in effect and showing how it was calculated.
8. Notices of Record Date, etc. In the event of:
(a) any taking by the Corporation of a record of the holders of any
class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any right
to subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right,
or any capital reorganization of the Corporation, any reclassification or
recapitalization of the capital stock of the Corporation or any transfer
of all or substantially all the assets of the Corporation to or
consolidation or merger of the Corporation with or into any other person,
or
(b) any voluntary or involuntary dissolution, liquidation or
winding-up of the Corporation, or
(c) any proposed issue or grant by the Corporation of any shares of
stock of any class or any other securities, or any right or option to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities (other than the issue of Common Stock on the
exercise of this Warrant),
then and in each such event the Corporation will deliver or cause to be
delivered to the holder of this Warrant a notice specifying (i) the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such
dividend, distribution or right, (ii) the date on which any such
reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to take
place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock (or Other Securities) shall be entitled to exchange
their shares of Common Stock (or Other Securities) for securities or other
property deliverable on such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution,
liquidation or winding-up, and (iii) the amount and character of any stock
or other securities, or rights or options with respect thereto, proposed
to be issued or granted, the date of such proposed issue or grant and the
persons or class of persons to whom such proposed issue or grant is to be
offered or made. Such notice shall be delivered at least twenty (20) days
prior to the date specified in such notice on which any such action is to
be taken.
65
9. Registration Rights. The Holder shall be entitled to all the rights set
forth in that certain Registration Rights Agreement (as the same may be amended
from time to time), dated as of December 30, 2005 between the Corporation and
the Holder. The Corporation and the Holder further agree that for the purposed
of said registration Rights Agreement, the Warrant Shares are "Registrable
Shares", as that term is defined in the Registration Rights Agreement.
10. Transferability. This Warrant may be transferred by the Holder to any
person or entity provided that such transfer complies with all applicable
securities laws. Such transfer may be made without any restrictions other than
compliance with all applicable securities laws and the requirement as to the
legend. Upon transfer of this Warrant, the transferee, by accepting this
Warrant, agrees to be bound by the provisions, terms, conditions, and
limitations of this Warrant.
11. Representations and Warranties. The Corporation hereby represents and
warrants to the Holder as follows:
11.1 (1) The Corporation has the requisite corporate power and
authority to enter into this Warrant, (2) the execution and delivery of
this Warrant by the Corporation has been duly authorized by the
Corporation's Board of Directors and no further consent or authorization
is required by the Corporation, its Board of Directors or its
stockholders, (3) this Warrant has been duly executed and delivered by the
Corporation, (4) this Warrant constitutes the valid and binding obligation
of the Corporation, enforceable against the Corporation in accordance with
its terms, except as such enforceability may be limited by (a) laws
relating to the availability of specific performance, injunctive relief or
other general principles of equity (whether or not such relief is sought
at law or equity), (b) applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting
generally, the enforcement of creditors' rights and remedies and (c)
limitations imposed by applicable federal and state securities laws upon
the enforcement of the indemnification provisions herein, (5) the
Corporation is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, (6) the Corporation has
all requisite corporate power and authority to own and operate its
property and assets and to conduct its business as now conducted and
proposed to be conducted and to consummate the transactions contemplated
hereby, (7) the Corporation is duly qualified to conduct its business and
is in good standing in each jurisdiction in which the character of the
properties owned or leased by it, or in which the transaction of its
business makes such qualification necessary, except where such failure to
qualify would not have a material adverse effect on the business,
properties, assets, operations, condition, financial or otherwise,
performance or prospects of the Corporation (a "Material Adverse Effect")
and (8) there is no pending or, to the Corporation's knowledge, threatened
action or proceeding affecting the Corporation before any governmental
agency or arbitrator which challenges or relates to this Warrant or which
may otherwise have a Material Adverse Effect.
66
11.2 This Warrant is validly issued and free from any taxes, liens
and encumbrances in respect of the issue thereof and is not subject to
preemptive rights or other similar rights of stockholders of the
Corporation. The Warrant Shares have been duly authorized and validly
reserved for issuance and, upon issuance in accordance with the Restated
Certificate of Incorporation and the Bylaws of the Corporation, will be
validly issued, fully paid and nonassessable, free of any taxes, liens and
encumbrances related to the issuance thereof and not subject to any
preemptive rights or similar rights of stockholders.
11.3 Assuming that the Holder is an accredited investor under
applicable law and is acquiring this Warrant for its own account, for
investment purposes and not with a view to any distribution hereof, the
offer, sale and issuance of this Warrant is exempt from the registration
requirements of the 1933 Act and from the registration requirements of the
applicable state securities laws.
11.4 The issuance, execution and delivery of this Warrant by the
Corporation and the issuance of Common Stock upon the exercise hereof will
not result in any violation of the Corporation's Restated Articles of
Incorporation or Bylaws (each as currently in effect), or violate or be in
conflict with, result in a breach of or constitute, with or without the
passage of time and giving of notice, a default under any instrument,
judgment, order, writ, decree or contract, statute, rule or regulation to
which the Corporation is subject and a violation of which would have a
Material Adverse Effect on the condition, financial or otherwise, or
operations of the Corporation or result in the creation of any lien,
charge or encumbrance upon any material assets of the Corporation or the
suspension, revocation, impairment, forfeiture or non-renewal of any
material permit, license, authorization or approval applicable to the
Corporation, its business or operations, or any of its assets or
properties. The Corporation is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any
court or government or regulatory or self-regulatory agency in order for
it to (A) issue, execute or deliver this Warrant, or (B) issue the Warrant
Shares upon the exercise hereof.
12. Exchange of Warrant. On surrender for exchange of this Warrant,
properly endorsed, to the Corporation, the Corporation at its expense will issue
and deliver to or on the order of the Holder a new Warrant of like tenor, in the
name of the Holder or as the Holder (on payment by such holder of any applicable
transfer taxes) may direct, calling in the aggregate on the face or faces
thereof for the number of shares of Common Stock called for on the face of this
Warrant so surrendered.
13. Replacement of Warrant. On receipt of evidence reasonably satisfactory
to the Corporation of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any such loss, theft or destruction of this Warrant, on
delivery of an indemnity agreement or security reasonably satisfactory in form
and amount to the Corporation or, in the case of any such mutilation, on
surrender and cancellation of such Warrant, the Corporation at its expense will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
14. Warrant Agent. The Corporation may, by written notice to the holder of
this Warrant, appoint an agent for the purpose of issuing Common Stock (or Other
Securities) on the exercise of this Warrant pursuant to Section 1, exchanging
this Warrant pursuant to Section 12, and replacing this Warrant pursuant to
Section 13, or any of the foregoing, and thereafter any such issuance, exchange
or replacement, as the case may be, shall be made at such office by such agent.
67
15. Indemnification. The Corporation hereby agrees to indemnify and hold
harmless the Holder and its respective affiliates, directors, officers,
partners, employees and other agents and representatives from and against any
and all liabilities, judgments, claims, settlements, losses, damages, reasonable
fees (including attorneys', accountants' and other experts' fees and
disbursements), liens, taxes, penalties, obligations and expenses incurred or
suffered by any such person or entity arising from, by reason of or in
connection with any misrepresentation or breach of any representation, warranty
or covenant of the Corporation contained in this Warrant or other document
delivered by the Company pursuant to or in connection with this Warrant
16. Remedies. The Corporation stipulates that the remedies at law of the
Holder in the event of any default or threatened default by the Corporation in
the performance of or compliance with any of the terms of this Warrant are not
and will not be adequate, and that such terms may be specifically enforced by a
decree for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.
17. Negotiability, etc. This Warrant is issued upon the following terms,
to all of which the Holder by the taking hereof consents and agrees:
(a) title to this Warrant may be transferred by endorsement (by the
Holder executing the form of assignment at the end hereof) and delivery in
the same manner as in the case of a negotiable instrument transferable by
endorsement and delivery; and
(b) any person in possession of this Warrant properly endorsed for
transfer to such person (including endorsed in blank) is authorized to
represent himself as absolute owner hereof and is empowered to transfer
absolute title hereto by endorsement and delivery hereof to a bona fide
purchaser hereof for value; each prior taker or owner waives and renounces
all of its equities or rights in this Warrant in favor of each such bona
fide purchaser, and each such bona fide purchaser shall acquire absolute
title hereto and to all rights represented hereby. Nothing in this
paragraph (b) shall create any liability on the part of the Corporation
beyond any liability or responsibility it has under law.
18. Notices, etc. All notices, requests, demands and other communications
from the Corporation to the holder hereof shall be in writing and sent by
express overnight courier service or electronic facsimile transmission with
confirmation of delivery, or delivered at such address as may have been
furnished to the Corporation in writing by the holder hereof or, until the
holder furnishes to the Corporation an address, then to, and at the address of,
the last holder of this Warrant who has so furnished an address to the
Corporation. All such notices, requests, demands and other communications shall,
when sent shall be effective upon receipt. The Corporation agrees to send to the
holder of this Warrant all reports that it sends to its shareholders in the
ordinary course of business.
68
19. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the internal laws of the State of New York and venue shall be based
in New York City. The headings in this Warrant are for purposes of reference
only, and shall not limit or otherwise affect any of the terms hereof. This
Warrant is being executed as an instrument under seal. The invalidity or
unenforceability of any provision hereof shall in no way affect the validity or
enforceability of any other provision. This Warrant reflects the entire
understanding of Holder and the Corporation and shall not be contradicted or
qualified by any other agreement before the date hereof. The representations and
warranties, covenants and agreements of the Corporation contained herein shall
survive the completion of the transactions related to the exercise of this
Warrant.
[Signature Page Follows]
69
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be executed
by its duly authorized officer as of the date first written above.
DATAMETRICS CORPORATION
By:
-----------------------------------------
Name:
Title:
70
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to purchase thereunder, ________ shares
of Common Stock of Datametrics Corporation and requests that the certificates
for such shares be issued in the name of, and delivered to ___________, federal
taxpayer identification number __________, whose address is ________________.
Please check the following:
|_| Payment of the exercise price per share, in the total amount of $
required under the within Warrant.
Dated:
---------------- -----------------------------------------------------
[Name of Holder or his assigns as specified
on the face of this Warrant]
By:
---------------------------------------------------
Name:
Title:
Address:
Signed in the presence of: ________________________
Name:
71
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto ______, federal taxpayer identification number _______, whose address is
_________, the right represented by the within Warrant to purchase ________
shares of Common Stock of Datametrics Corporation to which the within Warrant
relates, and appoints _________ Attorney to transfer such right on the books of
Datametrics Corporation with full power of substitution in the premises.
Dated:
------------
Name:
----------------------------------
Title:
----------------------------------
Address:
----------------------------------
Signed in the presence of:
Name: _________________________________
Title: __________________________________
Address:________________________________
72
Exhibit III
Capitalization Table

73
Exhibit IV
Registration Rights Agreement
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
December 30, 2005, is by and between DATAMETRICS CORPORATION, a Delaware
corporation (the "Corporation"), and SG DMTI Capital LLC, a New York limited
liability company (the "Investor").
WHEREAS, the Corporation has agreed, on the terms and subject to the
conditions set forth in the Stock and Warrant Purchase Agreement, dated as of
December 30, 2005 (the "Purchase Agreement"), to issue and sell to the Investor
shares of Series B Preferred Stock and a warrant exercisable into shares of the
Common Stock (the "Warrant"). Capitalized terms used herein and not otherwise
defined shall have the respective meanings set forth in the Purchase Agreement.
WHEREAS, in order to induce the Investor to enter into the Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and under applicable state securities
laws.
In consideration of the Investor entering into the Purchase Agreement, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
SECTION 1.
DEFINITIONS
As used in this Agreement the following terms shall have the following
meanings:
"Commission" means the Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
"Common Stock" means, the common stock, $.01 par value per share, of the
Corporation.
"Exchange Act" means the Securities Exchange Act of 1934 or any successor
Federal statute, and the rules and regulations of the Commission promulgated
thereunder, all as the same shall be in effect from time to time.
"Investor" means SG DMTI Capital LLC and each additional person who shall
execute a counterpart signature page hereto, and includes any successor to, or
assignee or transferee of, any such person who or which agrees in writing to be
treated as an Investor hereunder and to be bound by the terms and comply with
all applicable provisions hereof.
"Other Shares" means at any time those shares of Common Stock which do not
constitute Primary Shares or Registrable Shares.
74
"Primary Shares" means at any time the authorized but unissued shares of
Common Stock held by the Corporation in its treasury.
"Registrable Shares" means shares of Common Stock issuable upon exercise
of the Warrant. As to any particular Registrable Shares, once issued, such
Registrable Shares shall cease to be Registrable Shares when (i) they have been
registered under the Securities Act, the registration statement in connection
therewith has been declared effective and they have been disposed of pursuant to
such effective registration statement, (ii) they are eligible to be sold or
distributed pursuant to Rule 144 within any consecutive three month period
(including, without limitation, Rule 144(k)) without volume limitations, or
(iii) they shall have ceased to be outstanding.
"Registration Date" means the date upon which the registration statement
pursuant to which the Corporation shall have initially registered shares of
Common Stock under the Securities Act for sale to the public shall have been
declared effective.
"Rule 144" means Rule 144 promulgated under the Securities Act or any
successor rule thereto or any complementary rule thereto (such as Rule 144A).
"Securities Act" means the Securities Act of 1933 or any successor Federal
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect from time to time.
SECTION 2.
REQUIRED REGISTRATION
On any date after three (3) months following the Registration Date, if
holders representing not less than 50% of the Registrable Shares then
outstanding shall in writing state that such holders desire to sell Registrable
Shares in the public securities markets and request the Corporation to effect
the registration under the Securities Act of Registrable Shares, the Corporation
shall promptly use its best efforts to effect the registration under the
Securities Act of the Registrable Shares which the Corporation has been so
requested to register; provided, however, that the Corporation shall not be
obligated to effect any registration under the Securities Act except in
accordance with the following provisions:
2.1. the Corporation shall not be obligated to use its best efforts to
file and cause to become effective (i) more than one registration statement
initiated pursuant to this Section 2 in any six-month period, (ii) more than two
registration statements initiated pursuant to this Section 2 on Form S-1
promulgated under the Securities Act or any successor from thereto, (iii) any
registration on Form S-3 (or any comparable or successor form) until the
Corporation has qualified for use thereof, at which time there shall be no limit
on the number of registrations on Form S-3 that the holder may request or (iv)
any registration statements during any period in which any other registration
statement (other than on Form S-4 or Form S-8 promulgated under the Securities
Act or any successor forms thereto) pursuant to which Primary Shares are to be
or were sold has been filed and not withdrawn or has been declared effective
within the 90 days.
75
2.2. the Corporation may delay the filing or effectiveness of any
registration statement for a period of up to 90 days after the date of a request
for registration pursuant to this Section 2 if at the time of such request (i)
the Corporation is engaged, or has fixed plans to engage within 90 days of the
time of such request, in a firm commitment underwritten public offering of
Primary Shares in which the holders of Registrable Shares may include
Registrable Shares pursuant to Section 3 or (ii) the Corporation reasonably
determines that such registration and offering would interfere with any material
transaction involving the Corporation, as approved by the Board of Directors,
provided, however, that the Corporation may only delay the filing or
effectiveness of a registration statement pursuant to this Section 2(b) for a
total of 120 days after the date of a request for registration pursuant to this
Section 2.
2.3. with respect to any registration pursuant to this Section 2, the
Corporation shall give notice of such registration to the holders of all Other
Shares which are entitled to registration rights and the Corporation may include
in such registration any Primary Shares or Other Shares; provided, however, that
if the managing underwriter advises the Corporation that the inclusion of all
Registrable Shares, Primary Shares and/or Other Shares proposed to be included
in such registration would interfere with the successful marketing (including
pricing) of the Registrable Shares proposed to be included in such registration,
then the number of Registrable Shares, Primary Shares and/or Other Shares
proposed to be included in such registration shall be included in the following
order:
(a) first, the Registrable Shares requested to be included in such
registration (or, if necessary, such Registrable Shares pro rata among the
holders thereof based upon the number of Registrable Shares requested to be
registered by each such holder);
(b) second, the Primary Shares; and
(c) third, the Other Shares which are entitled to registration rights.
2.4. At any time before the registration statement covering Registrable
Shares become effective, the holders of a majority of such shares may request
the Corporation to withdraw or not to file the registration statement. In that
event, if such request of withdrawal shall not have been caused by, or made in
response to, the material adverse effect of an event on the business,
properties, conditions, financial or otherwise, or operations of the
Corporation, the holders shall have used their demand registration right under
this Section 2 and the Corporation shall no longer be obligated to register
Registrable Shares pursuant to the exercise of such registration right pursuant
to this Section 2 unless the remaining holders shall pay to the Corporation the
expenses incurred by the Corporation through the date of such request.
SECTION 3.
PIGGYBACK REGISTRATION
If the Corporation at any time proposes for any reason to register Primary
Shares or Other Shares under the Securities Act (other than on Form S-4 or Form
S-8 promulgated under the Securities Act or any successor forms thereto), it
shall give written notice to the Investor of its intention to register such
Primary Shares or Other Shares at least thirty (30) days before the initial
filing of such registration statement and, upon the written request, delivered
to the Corporation within twenty (20) days after delivery of any such notice by
the Corporation, of the Investor to include in such registration Registrable
Shares (which request shall specify the number of Registrable Shares proposed to
be included in such registration and shall state that the Investors desires to
sell such Registrable Shares in the public securities markets), the Corporation
shall use its best efforts to cause all such Registrable Shares to be included
in such registration on the same terms and conditions as the securities
otherwise being sold in such registration; provided, however, that if the
managing underwriter advises the Corporation that the inclusion of all
Registrable Shares requested to be included in such registration would interfere
with the successful marketing (including pricing) of the Primary Shares or Other
Shares proposed to be registered by the Corporation, then the number of Primary
Shares, Registrable Shares and Other Shares proposed to be included in such
registration shall be included in the following order:
76
3.1. if the Corporation proposes to register Primary Shares, or Primary
Shares and Other Shares:
(a) First, the Primary Shares; and
(b) Second, the Registrable Shares and Other Shares requested to be
included in such registration (or, if necessary, such Registrable Shares and
Other Shares pro rata among the holders thereof based upon the number of shares
of Registrable Shares and Other Shares requested to be registered by each such
holder); or
3.2. if the Corporation proposes to register Other Shares pursuant to a
request for registration by the holders of such Other Shares (other than
pursuant to Section 3 hereof):
(a) First, the Other Shares held by the parties demanding such
registration; and
(b) Second, the Registrable Shares and Other Shares (other than shares
registered pursuant to Section 3(b)(1) hereof) requested to be registered by the
holders hereof (or, if necessary, pro rata among the holders thereof based on
the number of Registrable Shares and Other Shares requested to be registered by
such holders).
SECTION 4.
PREPARATION AND FILING
If and whenever the Corporation is under an obligation pursuant to the
provisions of this Agreement to use its best efforts to effect the registration
of any Registrable Shares, the Corporation shall as expeditiously as
practicable:
4.1. use its best efforts to cause a registration statement that registers
such Registrable Shares to become and remain effective for a period of 90 days
or until all of such Registrable Shares have been disposed of (if earlier);
77
4.2. furnish, at least ten (10) business days before filing a registration
statement that registers such Registrable Shares, a prospectus relating thereto
or any amendments or supplements relating to such a registration statement or
prospectus, to one counsel selected by the Investors (the "Investor's Counsel"),
copies of all such documents proposed to be filed and permit Investor's Counsel
to review the registration statement, the prospectus and any amendments or
supplements thereto(it being understood that such ten-business-day period need
not apply to successive drafts of the same document proposed to be filed so long
as such successive drafts are supplied to the Investor's Counsel in advance of
the proposed filing and within a reasonable period of time following the receipt
of any comments by the staff of the Commission by he Corporation);
4.3. prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for at least a
period of 90 days or until all of such Registrable Shares have been disposed of
(if earlier) and to comply with the provisions of the Securities Act with
respect to the sale or other disposition of such Registrable Shares;
4.4. notify in writing the Investor's Counsel promptly (i) of the receipt
by the Corporation of any notification with respect to any comments by the
Commission with respect to such registration statement or prospectus or any
amendment or supplement thereto or any request by the Commission for the
amending or supplementing thereof or for additional information with respect
thereto, (ii) of the receipt by the Corporation of any notification with respect
to the issuance by the Commission of any stop order suspending the effectiveness
of such registration statement or prospectus or any amendment or supplement
thereto or the initiation or threatening of any proceeding for that purpose and
(iii) of the receipt by the Corporation of any notification with respect to the
suspension of the qualification of such Registrable Shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purposes;
4.5. use its best efforts to register or qualify such Registrable Shares
under such other securities or blue sky laws of such jurisdictions as the
Investors reasonably request and do any and all other acts and things which may
be reasonably necessary or advisable to enable the Investors to consummate the
disposition in such jurisdictions of the Registrable Shares owned by the
Investors; provided, however, that the Corporation will not be required to
qualify generally to do business, subject itself to general taxation or consent
to general service of process in any jurisdiction where it would not otherwise
be required to do so but for this paragraph (e) or to provide any material
undertaking or make any changes in its By-laws or Certificate of Incorporation
which the Board of Directors determines to be contrary to the best interests of
the Corporation or to modify any of its contractual relationships then existing;
4.6. furnish to the Investor holding such Registrable Shares such number
of copies of a summary prospectus, if any, or other prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents as such Investors may reasonably request in order
to facilitate the public sale or other disposition of such Registrable Shares;
4.7. in the event of an underwritten public offering of the Registrable
Shares, enter into (together with all holders proposing to distribute
Registrable Securities through such underwriting) and perform its obligations
under an underwriting agreement, in usual and customary form reasonably
acceptable to the Corporation, with the managing underwriter of such offering;
78
4.8. without limiting subsection (e) above, use its best efforts to cause
such Registrable Shares to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Corporation to enable the Investors holding such
Registrable Shares to consummate the disposition of such Registrable Shares;
4.9. notify the Investor holding such Registrable Shares on a timely basis
at any time when a prospectus relating to such Registrable Shares is required to
be delivered under the Securities Act within the appropriate period mentioned in
subparagraph (a) of this Section 4, of the happening of any event as a result of
which the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing and, at the request
of the Investor, prepare and furnish to such Investor a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be necessary
so that, as thereafter delivered to the offerees of such shares, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing;
4.10. subject to the execution of confidentiality agreements in form and
substance satisfactory to the Corporation, make available upon reasonable notice
and during normal business hours, for inspection by the Investor holding such
Registrable Shares, any underwriter participating in any disposition pursuant to
such registration statement and any attorney, accountant or other agent retained
by the Investor or underwriter (collectively, the "Inspectors"), all pertinent
financial and other records, pertinent corporate documents and properties of the
Corporation (collectively, the "Records"), as shall be reasonably necessary to
enable them to exercise their due diligence responsibility, and cause the
Corporation's officers, directors and employees to supply all information
(together with the Records, the "Information") reasonably requested by any such
Inspector in connection with such registration statement. Any of the Information
which the Corporation determines in good faith to be confidential and of which
determination the Inspector is so notified, shall not be disclosed by the
Inspectors unless (i) the disclosure of such Information is necessary to avoid
or correct a misstatement or an omission in the registration statement, (ii) the
release of such Information is ordered pursuant to a subpoena or other order
from a court of competent jurisdiction or (iii) such Information has been made
generally available to the public; the Investor agrees that it will, upon
learning that disclosure of such information is sought in a court of competent
jurisdiction, give notice to the Corporation and allow the Corporation, at the
Corporation's expense, to undertake appropriate action to prevent disclosure of
the Information deemed confidential;
4.11. use its best efforts to obtain from its independent certified public
accountants "cold comfort" letters addressed to the Corporation and any selling
Stockholders in customary form and at customary times and covering matters of
the type customarily covered by cold comfort benefits;
79
4.12. use all commercially reasonable efforts to prevent the issuance of
any stop order or other order suspending the effectiveness of the registration
statement and, if such an order is issued, to obtain the withdrawal thereof at
the earliest possible time and to notify the Investor of the issuance of such
order and the resolution thereof;
4.13. furnish to the Investor, on the date that the registration statement
becomes effective, a letter, dated such date, of outside counsel representing
the Corporation (and reasonably acceptable to the Investor) addressed to the
Investor, confirming such effectiveness and, to the knowledge of such counsel,
the absence of any stop order;
4.14. provide a transfer agent and registrar (which may be the same entity
and which may be the Corporation) for such Registrable Shares;
4.15. issue to any underwriter to which the Investor holding such
Registrable Shares may sell shares in such offering certificates evidencing such
Registrable Shares;
4.16. list such Registrable Shares on any national securities exchange on
which any shares of the Common Stock are listed or, if the Common Stock is not
listed on a national securities exchange, use its best efforts to qualify such
Registrable Shares for inclusion on the automated quotation system of the
National Association of Securities Dealers, Inc. (the "NASD"), or such other
national securities exchange as the holders of a majority of such Registrable
Shares shall reasonably request;
4.17. hold in confidence and not make any disclosure of information
concerning the Investor provided to the Corporation if at the time such
information is provided the Corporation is notified of the confidential nature
of such information unless (i) disclosure of such information is necessary to
comply with federal or state securities laws, (ii) the disclosure of such
information is necessary to avoid or correct a misstatement or omission in any
registration statement that includes the Investor's Registrable Shares, (iii)
the release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement, or (v) the Investor
consents to the form and content of any such disclosure. The Corporation shall,
upon learning that disclosure of any information concerning the Investor is
sought in or by a court or governmental body of competent jurisdiction or
through other means, give prompt notice to the Investor prior to making such
disclosure, and cooperate with the Investor in taking appropriate action to
prevent disclosure of, or to obtain a protective order for, such information;
4.18. otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission and make available to its security holders, as
soon as reasonably practicable, earnings statements (which need not be audited)
covering a period of twelve (12) months beginning within three months after the
effective date of the registration statement, which earnings statements shall
satisfy the provisions of Section 11 (a) of the Securities Act; and
4.19. subject to all the other provisions of this Agreement, use its best
efforts to take all other steps accessory to effect the registration of such
Registrable Shares contemplated hereby.
80
Each holder of the Registrable Shares, upon receipt of any notice from the
Corporation of any event of the kind described in Section 5(i) hereof, shall
forthwith discontinue disposition of the Registrable Shares pursuant to the
registration statement covering such Registrable Shares until such holders'
receipt of the copies of the supplemented or amended prospectus contemplated by
Section 5(i) hereof, and, if so directed by the Corporation, such holder shall
deliver to the Corporation all copies, other than permanent file copies then in
such holder's possession, of the prospectus covering such Registrable Shares at
the time of receipt of such notice.
SECTION 5.
EXPENSES
All expenses (other than underwriting discounts and commissions relating
to the Registrable Shares, as provided in the last sentence of this Section 5)
incurred by the Corporation in complying with Section 4, including, without
limitation, all registration and filing fees (including all expenses incident to
filing with the NASD), fees and expenses of complying with securities and blue
sky laws, printing expenses, fees and expenses of the Corporation's counsel and
accountants, and reasonable fees and expenses of the Investors' Counsel, shall
be paid by the Corporation; provided, however, that all underwriting discounts
and selling commissions applicable to the Registrable Shares and Other Shares
shall be borne by the holders selling such Registrable Shares and Other Shares,
in proportion to the number of Registrable Shares and Other Shares sold by each
such holder.
SECTION 6.
INDEMNIFICATION
6.1. In connection with any registration of any Registrable Shares under
the Securities Act pursuant to this Agreement, the Corporation shall indemnify
and hold harmless the holders of Registrable Shares, each underwriter, broker or
any other person acting on behalf of the holders of Registrable Shares and each
other person, if any, who controls any of the foregoing persons within the
meaning of the Securities Act against any losses, claims, damages or
liabilities, joint or several (or actions in respect thereof), to which any of
the foregoing persons may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or allegedly untrue
statement of a material fact contained in the registration statement under which
such Registrable Shares were registered under the Securities Act, any
preliminary prospectus or final prospectus contained therein or otherwise filed
with the Commission, any amendment or supplement thereto or any document
incident to registration or qualification of any Registrable Shares, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading or, with respect to any prospectus, necessary to make the
statements therein in light of the circumstances under which they were made not
misleading, or any violation by the Corporation of the Securities Act or state
securities or blue sky laws applicable to the Corporation and relating to action
or inaction required of the Corporation in connection with such registration or
qualification under such state securities or blue sky laws; and shall reimburse
the holders of Registrable Shares, such underwriter, such broker or such other
person acting on behalf of the holders of Registrable Shares and each such
controlling person for any legal or other expenses reasonably incurred by any of
them in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Corporation shall not be liable
in any such case to the extent that any such loss, claim, damage, liability or
action (including any legal or other expenses incurred) arises out of or is
based upon an untrue statement or allegedly untrue statement or omission or
alleged omission made in said registration statement, preliminary prospectus,
final prospectus, amendment supplement or document incident to registration or
qualification of any Registrable Shares in reliance upon and in conformity with
written information furnished to the Corporation through an instrument duly
executed by the holders of Registrable Shares or their counsel or underwriter
specifically for use in the preparation thereof; provided further, however, that
the foregoing indemnity agreement is subject to the condition that, insofar as
it relates to any untrue statement, omission or alleged omission made in any
preliminary prospectus but eliminated or remedied in the final prospectus (filed
pursuant to Rule 424 of the Securities Act), such indemnity agreement shall not
inure to the benefit of the Investor, any underwriter, broker or other person
acting on behalf of holders of the Restricted Shares from whom the person
asserting any loss, claim, damage, liability or expense purchased the Restricted
Shares which are the subject thereof, if a copy of such final prospectus had
been made available to such person and such Investor, underwriter, broker or
other person acting on behalf of holders of the Registrable Shares and such
final prospectus was not delivered to such person with or prior to the written
confirmation of the sale of such Registrable Shares to such person.
81
6.2. In connection with any registration of Registrable Shares under the
Securities Act pursuant to this Agreement, each holder of Registrable Shares
shall severally and not jointly indemnify and hold harmless (in the same manner
and to the same extent as set forth in the preceding paragraph of this Section
6) the Corporation, each director of the Corporation, each officer of the
Corporation who shall sign such registration statement, each underwriter, broker
or other person acting on behalf of the holders of Registrable Shares and each
person who controls any of the foregoing persons within the meaning of the
Securities Act with respect to any statement or omission from such registration
statement, any preliminary prospectus or final prospectus contained therein or
otherwise filed with the Commission, any amendment or supplement thereto or any
document incident to registration or qualification of any Registrable Shares, if
such statement or omission was made in reliance upon and in conformity with
written information furnished to the Corporation or such underwriter
specifically for use in connection with the preparation of such registration
statement, preliminary prospectus, final prospectus, amendment, supplement or
document; provided, however, that the maximum amount of liability in respect of
such indemnification shall be limited, in the case of each Seller of Registrable
Shares, to an amount equal to the net proceeds actually received by such Seller
from the sale of Registrable Shares effected pursuant to such registration.
82
6.3. Promptly after receipt by an indemnified party of notice of the
commencement of any action involving a claim referred to in the preceding
paragraphs of this Section 6, such indemnified party will, if a claim in respect
thereof is made against an indemnifying party, give written notice to the latter
of the commencement of such action. The failure of any indemnified party to
notify an indemnifying party of any such action shall not (unless such failure
shall have a material adverse effect on the indemnifying party) relieve the
indemnified party on account of this Section 6. In case any such action is
brought against an indemnified party, the indemnifying party will be entitled to
participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be responsible for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof; provided, however, that if any indemnified
party shall have reasonably concluded that there may be one or more legal or
equitable defenses available to such indemnified party which are additional to
or conflict with those available to the indemnifying party, or that such claim
or litigation involves or could have an effect upon matters beyond the scope of
the indemnity agreement provided in this Section 6, the indemnifying party shall
not have the right to assume the defense of such action on behalf of such
indemnified party (but shall have the right to participate therein with counsel
of its choice) and such indemnifying party shall reimburse such indemnified
party and any person controlling such indemnified party for that portion of the
fees and expenses of any counsel retained by the indemnified party which is
reasonably related to the matters covered by the indemnity agreement provided in
this Section 6. If the indemnifying party is not entitled to, or elects not to,
assume the defense of a claim, it will not be obligated to pay the fees and
expenses of more than one counsel with respect to such claim. 6.4. If the
indemnification provided for in this Section 6 is held by a court of competent
jurisdiction to be unavailable to an indemnified party with respect to any loss,
claim, damage, liability or action referred to herein, then the indemnifying
party, in lieu of indemnifying such indemnified party hereunder, shall
contribute to the amounts paid or payable by such indemnified party as a result
of such loss, claim, damage, liability or action in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and of the indemnified party on the other in connection with the statements
or omissions which resulted in such loss, claim, damage, liability or action as
well as any other relevant equitable considerations. The relative fault of the
indemnifying party and of the indemnified party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The parties agree
that it would not be just and equitable if contribution pursuant hereto were
determined by pro rata allocation or by any other method or allocation which
does not take account of the equitable considerations referred to herein. No
person guilty of fraudulent misrepresentation shall be entitled to contribution
from any person.
SECTION 7.
EXCHANGE ACT COMPLIANCE
From the Registration Date or such earlier date as a registration
statement filed by the Corporation pursuant to the Exchange Act relating to any
class of the Corporation's securities shall have become effective, the
Corporation shall comply with all of the reporting requirements of the Exchange
Act applicable to it (whether or not it shall be required to do so, but
specifically excluding Section 14 of the Exchange Act if not then applicable to
the Corporation) and shall comply with all other public information reporting
requirements of the Commission which are conditions to the availability of Rule
144 for the sale of the Common Stock. The Corporation shall cooperate with the
Investor in supplying such information as may be necessary for the Investor to
complete and file any information reporting forms presently or hereafter
required by the Commission as a condition to the availability of Rule 144.
83
SECTION 8.
NO CONFLICT OF RIGHTS
The Corporation shall not, after the date hereof, grant any registration
rights which conflict with or impair the registration rights granted hereby. In
the event the Corporation grants to any person any registration rights that are
superior in scope or substance to the registration rights granted to the holders
of the Registrable Shares, such superior rights shall be simultaneously granted
to such holders.
SECTION 9.
TERMINATION
This Agreement shall terminate and be of no further force or effect when
there shall no longer be any Registrable Shares outstanding; provided that
Sections 5 and 6 shall survive any termination of this Agreement.
SECTION 10.
SUCCESSORS AND ASSIGNS
This Agreement shall bind and inure to the benefit of the Corporation and
the Investor and, subject to Section 11, the respective successors and assigns
of the Corporation and the Investor.
SECTION 11.
ASSIGNMENT
The Investor may assign its rights hereunder to any purchaser or
transferee of Registrable Shares; provided, however, that such purchaser or
transferee shall, as a condition to the effectiveness of such assignment, be
required to execute a counterpart to this Agreement agreeing to be treated as an
Investor whereupon such purchaser or transferee shall have the benefits of, and
shall be subject to the restrictions contained in, this Agreement as if such
purchaser or transferee was originally included in the definition of an Investor
herein and had originally been a party hereto
84
SECTION 12.
ENTIRE AGREEMENT
This Agreement and the other writings referred to herein or therein or
delivered pursuant hereto or thereto, contain the entire agreement between the
Investor and the Corporation with respect to the subject matter hereof and
supersede all prior and contemporaneous arrangements or understandings with
respect thereto.
SECTION 13.
NOTICES
All notices, requests, consents and other communications hereunder to any
party shall be deemed to be sufficient if contained in a written instrument
delivered in person or sent by telecopy, nationally-recognized overnight courier
or first class registered or certified mail return receipt requested, postage
prepaid, addressed to such party at the address set forth below or such other
address as may hereafter be designated in writing by such party to the other
parties:
If sent to the Investor, notices shall be sent to the following address:
SG Phoenix Ventures LLC
110 East 59th Street, Suite 1901
New York, New York 10022
Attention: Andrea Goren
Fax: (212) 202-7565
With a copy to:
Brown Raysman Millstein Felder & Steiner LLP
900 Third Avenue
New York, New York 10022
Attn: Joel H. Handel, Esq.
Fax: (212) 895-2900
If sent to the Corporation, notice shall be sent to the following address:
Datametrics Corporation
1717 Diplomacy Row
Orlando, FL 32809
Attention: Daniel Bertram, President
Fax: (407) 251-4588
85
With a copy to:
McLaughlin & Stern LLP
260 Madison Avenue
New York, New York 10016
Attn: Steven Schuster, Esq.
Fax: (212) 448-0066
All such notices, requests, consents and other communications shall be
deemed to have been delivered (a) in the case of personal delivery or delivery
by telecopy, on the date of such delivery, (b) in the case of dispatch by
nationally-recognized overnight courier, on the next business day following such
dispatch and (c) in the case of mailing, on the third business day after the
posting thereof.
SECTION 14.
MODIFICATIONS; AMENDMENTS; WAIVERS
The terms and provisions of this Agreement may not be modified or amended,
nor may any provision be waived, except pursuant to a writing signed by the
Corporation and the holders of at least a majority of the Registrable Shares
then outstanding. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon the Investor, each holder and the Corporation.
The failure of any party to exercise any right or remedy under this Agreement or
otherwise, or the delay by any party in exercising such right or remedy, shall
not operate as a waiver thereof.
SECTION 15.
COUNTERPARTS
This Agreement may be executed in any number of counterparts, and each
such counterpart hereof shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one agreement.
SECTION 16.
HEADINGS
The headings of the various sections of this Agreement have been inserted
for convenience of reference only and shall not be deemed to be a part of this
Agreement.
86
SECTION 17.
GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York applicable to contracts made and to be performed
wholly therein.
[Signature Page Follows]
87
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement as of the date first set forth above.
DATAMETRICS CORPORATION
By: _________________________
Name:
Title:
SG DMTI Capital LLC
By: SG Phoenix Ventures LLC
its Managing Member
By: _________________________
Name: Philip S. Sassower
Title: Member
By: _________________________
Name: Andrea Goren
Title: Member
88
Exhibit V
Opinion of Counsel to the Company
MCLAUGHLIN & STERN, LLP LETTERHEAD
December 30, 2005
SG DMTI Capital LLC
110 East 59th Street, Suite 1901
New York, New York 10022
Re: Series B Preferred Stock and Warrant Purchase Agreement dated
as of December 30, 2005 (the "Purchase Agreement") between
Datametrics Corporation (the "Company") and SG DMTI Capital
LLC (the "Purchaser")
Ladies and Gentlemen:
This opinion is rendered to you in accordance with Section 7.8. of the
Purchase Agreement. Capitalized terms used but not otherwise defined in this
opinion shall have the meanings ascribed thereto in the Purchase Agreement.
In our capacity as counsel for the Company in connection with the
transactions contemplated by the Purchase Agreement, we have examined originals
or copies certified or otherwise identified to our satisfaction as being true
copies of such corporate records of the Company, such certificates, permits and
representations and warranties of governmental authorities, officers of the
Company and others, and other documents as we have deemed necessary for the
purpose of this opinion. Without limiting the foregoing, we have reviewed the
Restated Certificate of Incorporation of the Company, the Company's minute
books, the Purchase Agreement and the other Investment Documents.
In the examination of such documents, we have assumed the genuineness of
all signatures and the authenticity of all documents submitted to us as
originals and the conformity to the original documents of all documents
submitted to us as certified or photo static copies, and we have relied upon the
aforesaid documents with respect to the accuracy of material factual matters
contained therein. We also have assumed, without verification, for purposes of
this opinion, the due authorization, execution and delivery of each of the
Investment Documents by any party thereto and that the Investment Documents
constitute each of such parties' legal, valid and binding obligations
enforceable in accordance with its terms, except as enforceability of the same
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors rights generally and by the exercise of
judicial discretion in accordance with general principles applicable to
equitable and similar remedies. As to any facts relevant to our opinion, which
were not independently established, we have relied upon the representations of
the Company contained in such documents (including, without limitation, the
Purchase Agreement), certificates of officers of the Company and government
officials and information given to us by officers of the Company. A matter
stated in this opinion to be "to our knowledge" is so stated to reflect the fact
that, while we are aware of no reason to believe that the statement of such
matter is inaccurate based on information that we have as a result of
representing the Company in this matter.
89
On the basis of such examinations and our consideration of such questions
of law as we have deemed relevant in the circumstances and subject to the
limitations, qualifications, exceptions and assumptions set forth herein, we are
of the opinion that:
(i) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware, provided,
however, the Company is delinquent in the filing of its franchise taxes in
the State of Delaware for the years 2003 and 2004 as set forth on Schedule
II of the Purchase Agreement.
(ii) The Company is qualified to do business as a foreign
corporation in each jurisdiction in which the failure to be so qualified
could reasonably be expected to have a Material Adverse Effect.
(iii) To the best of our knowledge, the Restated Certificate of
Incorporation as filed with the Delaware Secretary of State on April 15,
1987, as amended, has been duly adopted by all necessary corporate action
on the part of the Company, has been duly executed by a duly authorized
officer of the Company and has been duly filed with the Delaware Secretary
of State.
(iv) The Company has all requisite corporate power and authority to
own and lease its properties and assets and to carry on its business as
presently conducted.
(v) Subject to the qualifications hereafter set forth in this
opinion, (i) the execution and delivery of the Investment Documents by the
Company and the consummation by it of the Investments contemplated thereby
have been duly authorized by all necessary corporate action on behalf of
the Company and no further consent or authorization of the Company or its
Board of Directors or stockholders is required for the performance by the
Company of its obligations thereunder, (ii) the Company has all requisite
corporate power and authority to enter into and perform its obligations
under the Investment Documents and to issue (A) the Preferred Shares and
the Warrants pursuant to the Purchase Agreement and (B) the Warrant
Shares, and (iii) each Investment Document has been duly executed and
delivered by the Company and constitutes a valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms.
(vi) The Series B Preferred Stock of the Company has the rights,
preferences, privileges and restrictions set forth in the Certificate of
Designations. When issued and paid for in accordance with the terms of the
Purchase Agreement, the Preferred Shares and Warrants will be duly and
validly issued, fully paid and non-assessable, and free of any liens,
encumbrances and preemptive or similar rights contained in the Certificate
of Designations and Bylaws or, in any agreement to which the Company is a
party of which we have knowledge, except as specifically provided in the
Purchase Agreement; provided, however, that the -------- ------- Preferred
Shares (and the Warrant Shares) are subject to restrictions on transfer
under state and/or federal securities laws and as set forth in the
Purchase Agreement and the Registration Rights Agreement. The Reserved
Amount and Warrant Shares have been duly and validly reserved and, when
issued in compliance with the provisions of the Company's Restated
Certificate of Incorporation and the Warrants as currently in effect, will
be validly issued, fully paid and non-assessable.
90
(vii) The execution, delivery and performance by the Company of the
Investment Documents and the issuance, sale and delivery to the Purchasers
of the Preferred Shares and Warrants in accordance with the terms of the
Purchase Agreement will not violate, conflict with or result in any breach
of (i) any term of the Restated Certificate of Incorporation or the
Bylaws, (ii) any order of which we have knowledge addressed specifically
to the Company, or any law, statute, rule or regulation applicable to the
Company or its properties or assets or (iii) to out knowledge, any term or
provision of any contract, lease, license or other agreement or instrument
to which the Company is a party or by which it is bound.
(viii) To our knowledge, there are no actions, suits, proceedings or
investigations threatened in writing or pending against the Company before
any court or governmental agency.
(ix) In reliance upon the accuracy of the representations and
warranties of the Purchaser made in the Purchase Agreement, the offer and
sale of the Preferred Shares and Warrants in accordance with the terms of
the Purchase Agreement are exempt from the registration requirements of
the Securities Act of 1933, as amended.
(x) No consent, approval or authorization of or designation,
declaration or filing with any governmental authority on the part of the
Company is required in connection with the valid execution and delivery of
the Investment Documents, the offer, sale or issuance of the Preferred
Shares or Warrants, or the issuance of the Warrant Shares, except (a) the
filing of a Form D with the Securities Exchange Commission and applicable
state securities authorities and (b) qualification (or taking such action
as may be necessary to secure an exemption from qualification, if
available) under applicable state securities laws.
The foregoing opinions are subject to the following additional
qualifications and exceptions:
A. We express no opinion on the validity, binding effect or
enforceability under any provisions of the Investment Documents (i)
which waive any rights afforded to any party thereto under any
statute or constitutional provision, (ii) which waive broadly or
vaguely stated rights or future rights, or waive certain rights or
defenses to obligations where such waivers are against statutes,
laws or public policy, or (iii) the breach of which a court
concludes is not material or does not adversely affect the
non-breaching party.
91
B. We express no opinion on the enforceability of any provisions in the
Investment Documents relating to consent to jurisdiction or choice
of law.
C. Insofar as the indemnity provisions of the Purchase Agreement may
encompass indemnification with respect to violation of laws,
enforcement thereof may be limited by public policies underlying
such laws.
We are licensed to practice law in the State of New York and do not hold
ourselves out to be experts on, or generally familiar with or qualified to
express a legal opinion on, the laws of any jurisdiction other than those of the
States of New York and Delaware, and the federal laws of the United States. In
giving this opinion, we are not passing on any matters of the laws of any
jurisdiction other than the federal laws of the United States and the laws of
the States of New York and Delaware. This opinion is issued as of the date
hereof and is necessarily limited to the laws now in effect and the facts and
circumstances known to us on the date hereof. We are not assuming any obligation
to review or update this opinion should applicable law or the existing facts and
circumstances change.
This opinion is provided by us as counsel to the Company to you for your
exclusive use only and is not to be made available to or relied upon by any
other persons or entities without our prior written consent.
Very truly yours,
92
Exhibit VI
Compliance Certificate
COMPLIANCE CERTIFICATE
OF
DATAMETRICS CORPORATION
The undersigned, being a duly authorized officer of DATAMETRICS
CORPORATION, a Delaware corporation (the "Corporation"), hereby certifies that:
1. The representations and warranties of the Corporation contained in Section
4 of the Series B Preferred Stock and Warrant Purchase Agreement, dated as
of December 30, 2005, by and between the Corporation and SG DMTI LLC (the
"Agreement"), are true and correct in all material respects as of the date
hereof except that to the extent such representations and warranties are
qualified by materiality, such representations and warranties are true and
correct in all respects as of the date hereof.
2. The Corporation and its Subsidiaries have performed and complied with all
of the agreements, obligations and covenants contained in the Agreement
that are required to be performed or complied with by them on or before
the date hereof.
IN WITNESS WHEREOF, the undersigned has caused this Certificate to
be executed and delivered as of this ____ day of _______, 200_.
DATAMETRICS CORPORATION
-------------------------------
Name:
Title:
93
Exhibit VII
Form of Secured Promissory Note
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS
AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED OR PLEDGED BY ANY PERSON,
UNLESS (1) EITHER (A) A REGISTRATION WITH RESPECT THERETO SHALL BE
EFFECTIVE UNDER THE SECURITIES ACT, OR (B) THE COMPANY SHALL HAVE RECEIVED
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT IS AVAILABLE, AND (2) THERE SHALL
HAVE BEEN COMPLIANCE WITH ALL APPLICABLE STATE SECURITIES OR "BLUE SKY"
LAWS.
--------------------------------------------------------------------------
DATAMETRICS CORPORATION
--------------------------------------------------------------------------
December 30, 2005
$500,000
Secured Promissory Note
Datametrics Corporation ("Borrower"), for value received, hereby promises
to pay to the order of SG DMTI CAPITAL, LLC, a Delaware limited liability
company ("Payee"), the principal sum of FIVE HUNDRED THOUSAND DOLLARS ($500,000)
(the "Principal Amount"), together with interest on the unpaid Principal Amount
from the date of this Note to December 31, 2006 (the "Maturity Date"), at a per
annum rate equal to 10 percent (10%), in lawful money of the United States.
SECTION 1. Payment Terms.
(a) Mandatory. The Principal Amount of this Note shall be payable at the
Maturity Date or earlier upon the occurrence of an Event of Default
hereunder. Any and all interest accrued and unpaid thereon shall be
payable in four quarterly installments and for the first time on March 31,
2006 or earlier upon the occurrence of an Event of Default hereunder.
Accrued and unpaid interest shall commence on the date hereof and be
payable upon each quarterly installment and after the Maturity Date until
paid in full (after as well as before judgment), on demand. All payments
by Borrower hereunder shall be applied first to pay any interest that is
due, but unpaid, and then to reduce the Principal Amount.
(b) Optional. This Note can be prepaid, in whole or in part, with the prior
written consent of Payee.
94
(c) No Right to Set-Off or Counterclaim. Each payment by Borrower pursuant to
this Note shall be made without set-off or counterclaim and shall be made
in lawful currency of the United States of America and in immediately
available funds.
(d) Waiver of Presentment/Payment of Legal Fees. Borrower (i) waives
presentment, demand, protest or notice of any kind in connection with this
Note and (ii) agrees to pay to the holder hereof, on demand, all costs and
expenses (including reasonable legal fees and expenses) incurred in
connection with the preparation, enforcement and collection of this Note.
SECTION 2. Interest.
(a) Interest. The Principal Amount shall accrue interest at a rate equal to
ten percent (10 %) per annum.
(b) Calculation and Payment. Interest on the Principal Amount shall be
calculated on the basis of a three hundred sixty-five (365) day year for
the actual number of days elapsed.
(c) Default Rate of Interest. At the election of Payee, after the occurrence
of an Event of Default and for so long as it continues, the Principal
Amount shall bear interest as set forth in Section 2.A above, plus 8% per
annum.
(d) Excess Interest. Notwithstanding anything to the contrary set forth
herein, the aggregate interest, fees and other amounts required to be paid
by Borrower to Payee are hereby expressly limited so that in no
contingency or event whatsoever, whether by reason of acceleration of
maturity of the Principal Amount or otherwise, shall the amount paid or
agreed to be paid to Payee hereunder exceed the maximum permissible under
applicable law. If under or from any circumstances whatsoever, fulfillment
of any provision hereunder at the time of performance of such provision
shall be due, shall involve exceeding the limit permitted by applicable
law, then the Principal Amount shall automatically be reduced to the limit
permitted, and if under or from circumstances whatsoever Payee should ever
receive as interest any amount which would exceed the highest lawful rate,
the amount of such interest that is excessive shall be applied to the
reduction of the Principal Amount and not to the payment of interest. In
the event of a conflict, this provision shall control every other
provision hereunder.
SECTION 3. Representations of Borrower. Borrower hereby represents to
Payee that:
(a) Borrower is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has full power and
authority to conduct its business as presently conducted and as proposed
to be conducted by it.
(b) Borrower has the corporate power and capacity to enter into this Note, and
to do all acts and things as are required or contemplated hereunder to be
done, observed and performed by it. Borrower has taken all necessary
corporate action to authorize the execution, delivery and performance of
each of this Note.
95
(c) The execution and delivery of this Note and the performance by Borrower of
its obligations hereunder (i) does not and will not contravene, breach or
result in any default under (A) the articles, memorandum of association,
by-laws, constating documents or other organizational documents of
Borrower, or (B) under any mortgage, lease, agreement or other legally
binding instrument, license, permit or applicable law to which Borrower is
a party or by which Borrower or any of its properties or assets may be
bound, (ii) will not oblige Borrower to grant any encumbrance to any
person other than to Payee, and (iii) will not result in or permit the
acceleration of the maturity of any indebtedness, liability or obligation
of Borrower under any mortgage, lease, agreement or other legally binding
instrument of or affecting Borrower.
SECTION 4. Events of Default. Upon the occurrence of any of the following
events (each an "Event of Default"), the entire unpaid principal of this Note,
together with all accrued interest hereon, shall become immediately due and
payable, and Payee shall be entitled to pursue all remedies that Payee may have,
at law or in equity, for the enforcement and collection hereof:
(a) The failure of Borrower to make (i) any payment of all interest due on
this Note on each quarterly installment and (ii) full payment of all
interest and principal due on this Note on the Maturity Date; or
(b) Borrower shall make an assignment for the benefit of creditors, file a
petition in bankruptcy, consent to entry of an order for relief against it
in an involuntary case, be adjudicated insolvent or bankrupt, petition or
apply to any tribunal for the appointment of any receiver, trustee or
similar official for it or a substantial part of its assets, or commence
any proceedings under any bankruptcy, reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect; there shall occur the
appointment of a receiver, trustee, assignee, liquidator, custodian or
similar official of it or a substantial part of Borrower's assets; or
there shall have been filed any such petition or application or any such
proceeding shall have been commenced against Borrower, which remains
undismissed for a period of sixty (60) days or more; Borrower by any act
or omission shall indicate its respective consent to, approval of or
acquiescence in any such petition, application or proceeding or the
appointment of any trustee for it or any substantial part of any of its
respective properties; or
(c) A court of competent jurisdiction shall enter an order or decree under any
bankruptcy law that is for relief against Borrower in an involuntary case,
appoints a receiver, trustee, assignee, liquidator or similar official of
Borrower, or for any substantial part of Borrower's property, or orders
the liquidation of Borrower; and the order or decree remains unstayed and
in effect for thirty (30) days.
(d) The occurrence of a default in any covenant or agreement or breach of any
representation or warranty under any present or future document,
instrument or agreement between Borrower and Payee which, with respect to
a default of a covenant or agreement, is not cured within the grace period
applicable thereto, if any, or if no grace period is designated and such
default is capable of cure, remains uncured for more than thirty (30) days
following its occurrence.
96
(e) A court of competent jurisdiction shall enter into a judgment, order or
decree against Borrower for an amount of $25,000 or more.
SECTION 5. Acceleration. Upon the occurrence of an Event of Default, the
unpaid Principal Amount and accrued interest thereon shall automatically become
immediately due and payable, without presentment, demand, protest, notice of
intent to accelerate, notice of acceleration or other requirements of any kind,
all of which are hereby expressly waived by Borrower.
SECTION 6. Amendments and Waivers.
(a) The provisions of this Note may from time to time be amended, modified or
waived, if such amendment, modification or waiver is in writing and
consented to by Borrower and Payee.
(b) No failure or delay on the part of Payee in exercising any power or right
under this Note shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power or right preclude any other or further
exercise thereof or the exercise of any other power or right. No notice to
or demand on Borrower in any case shall entitle it to any notice or demand
in similar or other circumstances. No waiver or approval by Payee shall,
except as may be otherwise stated in such waiver or approval, be
applicable to subsequent transactions. No waiver or approval hereunder
shall require any similar or dissimilar waiver or approval thereafter to
be granted hereunder.
(c) To the extent that Borrower makes a payment or payments to Payee, and such
payment or payments or any part thereof are subsequently for any reason
invalidated, set aside and/or required to be repaid to a trustee, receiver
or any other party under any bankruptcy law, state or federal law, common
law or equitable cause, then to the extent of such recovery, the
obligation or part thereof originally intended to be satisfied, and all
rights and remedies therefor, shall be revived and continued in full force
and effect as if such payment had not been made or such enforcement or
setoff had not occurred.
SECTION 7. Miscellaneous.
(a) Governing Law. This Note shall be governed by and construed in accordance
with the laws of the State of New York, without regard to its principles
of conflicts of law. Sections 5-1401 and 5-1402 of the General Obligations
Law of the State of New York shall apply to this Note and Borrower hereby
waives any right to stay or dismiss on the basis of forum non conveniens
any action or proceeding brought before the courts of the State of New
York sitting in New York County or of the United States of America for the
Southern District of New York and hereby submits to the jurisdiction of
such courts.
(b) Notices. Unless otherwise provided, all notices required or permitted
under this Note shall be in writing and shall be deemed effectively given
(i) on the day delivered or transmitted to the party to be notified in the
case of notices delivered by hand or by facsimile, (in the event
confirmation is received) (ii) upon confirmed delivery by Federal Express
or other nationally recognized courier service providing next-business-day
delivery, or (iii) three business days after deposit with the United
States Postal Service, by registered or certified mail, postage prepaid
and addressed to the party to be notified, in each case at the address set
forth below, or at such other address as such party may designate by
written notice to the other party (provided that notice of change of
address shall be effective upon receipt by the party to whom such notice
is addressed).
97
If sent to Payee, notices shall be sent to the following address:
SG Phoenix Ventures LLC
110 East 59th Street, Suite 1901
New York, New York 10022
Attention: Mr. Andrea Goren
Fax: (212) 202-7565
With a copy to:
Brown Raysman Millstein Felder & Steiner LLP
900 Third Avenue
New York, New York 10022
Attn: Joel H. Handel, Esq.
Fax: (212) 895-2900
If sent to Borrower, notice shall be sent to the following address:
Datametrics Corporation
1717 Diplomacy Row
Orlando, FL 32809
Attention: Daniel Bertram, President
Fax: (407) 251-4588
With a copy to:
McLaughlin & Stern LLP
260 Madison Avenue
New York, New York 10016
Attn: Steven Schuster, Esq.
Fax: (212) 448-0066
(c) Waiver of Jury Trial. PAYEE AND BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION
WITH, THIS NOTE OR ANY OTHER DOCUMENT OR INSTRUMENT EXECUTED AND DELIVERED
IN CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF PAYEE OR BORROWER.
THIS PROVISION IS A MATERIAL INDUCEMENT FOR PAYEE'S PURCHASING THIS NOTE.
SECTION 8. Security.
98
(a) Creation of Security Interest. In order to secure the payment of the
principal and interest and all other obligations of the Borrower now or
hereafter owed by the Borrower to the Payee (the "Secured Obligations"),
the Borrower hereby grants to the Payee (or its designee) (the "Secured
Party") a security interest in all of the personal property of the
Borrower, including without limitation the personal property described
below (the "Collateral"):
(1) all equipment in all of its forms, wherever located, now or hereafter
existing, all parts thereof and all accessions thereto;
(2) all inventory in all of its forms, wherever located, now or hereafter
existing, including, but not limited to, (A) all raw materials and work in
process therefor, finished goods thereof, and materials used or consumed
in the manufacture or production thereof; (B) goods in which the Borrower
has an interest in mass or a joint or other interest or right of any kind
(including, without limitation, goods in which the Borrower has an
interest or right as consignee); and (C) goods which are returned to or
repossessed by the Borrower and all accessions thereto and products
thereof and documents therefor;
(3) all accounts, accounts receivable, contract rights, chattel paper,
documents, instruments, deposit accounts, general intangibles, tax refunds
and other obligations of any kind owing to the Borrower, now or hereafter
existing, whether or not arising out of or in connection with the sale or
lease of goods or the rendering of services, and all rights now or
hereafter existing in and to all security agreements, leases, subleases,
and other contracts securing or otherwise relating to any such accounts,
contract rights, chattel paper, documents, instruments, deposit accounts,
general intangibles, or obligations;
(4) all intellectual property of any kind or nature whatsoever, including
without limitation patents, patent applications, copyrights, copyright
applications, trademarks and service marks and applications therefore,
mask works, net lists and trade secrets;
(5) all other general intangibles, whether now existing or hereafter arising
and wherever arising, including, but not limited to, all (A) partnership,
corporate, and other interests in and to any person or entity; (B) letters
of authorization, permits, licenses, consents, contract rights,
franchises, documents, certificates, records, customer lists, customer and
supplier contracts, easements, variances, certifications and approvals of
tribunals, bills of lading (negotiable and non-negotiable), warehouse
receipts, any claim of the Borrower against any lender, liquidated or
unliquidated, and other rights, privileges and goodwill obtained or used
in connection with any property of the Borrower; (C) rights of the
Borrower under any equipment leases; and (D) tax refunds and other refunds
or rights to receive payment from U.S. federal, state or local governments
or foreign governments or other tribunals;
(6) all bank accounts, deposit accounts, and margin accounts, maintained by
the Borrower with financial institutions, brokers, dealers, and all other
persons or entities relating to commodities and/or securities, including
all funds held therein and all certificates and instruments, if any, from
time to time representing or evidencing such accounts;
(7) all investment property (as defined in Section 9-115 of the New York
Uniform Commercial Code);
99
(8) to the extent it is possible to create a security interest or perfect a
security interest in such Collateral by filing a UCC-1 financing statement
centrally, or in the case of dual filing states, centrally and at the
county level, as applicable, all of the Borrower's fixtures now existing
or hereafter acquired, all substitutes and replacements therefor, all
accessions and attachments thereto, and all tools, parts, and equipment
now or hereafter added to or used in connection with the fixtures on or
above all real property now owned or hereafter acquired by the Borrower;
(9) all records and documents relating to any and all of the foregoing,
including, without limitation, records of account, whether in the form of
writing, microfilm, microfiche, tape, or electronic media; and
(10) all substitutes and replacements for, accessions, attachments, and other
additions to tools, parts, and equipment used in connection with, and all
proceeds, products, and increases of, any and all of the foregoing
Collateral, in whatever form, whether cash or noncash; interest, premium,
and principal payments, redemption proceeds and subscription rights, and
shares or other proceeds of conversions or splits of any securities in
Collateral, and returned or repossessed Collateral; and, to the extent not
otherwise included, all (A) payments under insurance, or any indemnity,
warranty or guaranty, payable by reason of loss or damage to or otherwise
with respect to any of the foregoing Collateral, (B) cash and (C) security
for the payment of any of the Collateral, and all goods which gave or will
give rise to any of the Collateral or are evidenced, identified, or
represented therein or thereby.
(b) Sale or Removal of Collateral Prohibited. Except for the sale of inventory
in the ordinary course of the Borrower's business, the Borrower shall not
sell, lease, encumber, pledge, mortgage, assign, grant a security interest
in, or otherwise transfer the Collateral without the written consent of
the Payee, which consent shall not be unreasonably withheld.
(c) Uniform Commercial Code Security Agreement. This Section is intended to be
a security agreement pursuant to the Uniform Commercial Code for any of
the items specified above as part of the Collateral that, under applicable
law, may be subject to a security interest pursuant to the Uniform
Commercial Code, and the Borrower hereby grants the Payee a security
interest in said items. The Borrower agrees that the Payee may file any
appropriate document in the appropriate index as a financing statement for
any of the items specified above as part of the Collateral. In addition,
the Borrower agrees to execute and deliver to the Payee, upon the Payee's
request, any financing statements, as well as extensions, renewals and
amendments thereof, and reproductions of this Note in such form as the
Payee may reasonably require to perfect a security interest with respect
to said items. The Borrower shall pay all costs of filing such financing
statements and any extensions, renewals, amendments, and releases thereof,
and shall pay all reasonable costs and expenses of any record searches for
financing statements the Payee may reasonably require. Without the prior
written consent of the Payee, the Borrower shall not create or suffer to
be created pursuant to the Uniform Commercial Code any other security
interest in the Collateral, other than the Security Interests of Secured
Party and existing secured creditors. Upon the occurrence of an Event of
Default, the Secured Party shall have the remedies of a holder under the
Uniform Commercial Code and, at Secured Party's option, may also invoke
the other remedies provided in this Note as to such items. In exercising
any of said remedies, the Secured Party may proceed against the items of
real property and any items of personal property specified above as part
of the Collateral separately or together and in any order whatsoever,
without in any way affecting the availability of the Secured Party's
remedies under the Uniform Commercial Code or of the other remedies
provided in this Note.
100
(d) Rights of Secured Party.
(1) Upon an Event of Default, the Secured Party may require the Borrower to
assemble the Collateral and make it available to the Secured Party at the
place to be designated by the Secured Party that is reasonably convenient
to the parties. The Secured Party may sell all or any part of the
Collateral as a whole or in parcels either by public auction, private
sale, or other method of disposition. The Secured Party may bid at any
public sale on all or any portion of the Collateral. Unless the Collateral
is perishable or threatens to decline speedily in value or is of the type
customarily sold on a recognized market, the Secured Party shall give the
Borrower reasonable notice of the time and place of any public sale or of
the time after which any private sale or other disposition of the
Collateral is to be made, and notice given at least 10 days before the
time of the sale or other disposition shall be conclusively presumed to be
reasonable.
(2) Notwithstanding any provision of this Agreement, the Secured Party shall
be under no obligation to offer to sell the Collateral. In the event the
Secured Party offers to sell the Collateral, the Secured Party will be
under no obligation to consummate a sale of the Collateral if, in their
reasonable business judgment, none of the offers received by them
reasonably approximates the fair value of the Collateral.
(3) In the event the Secured Party elects not to sell the Collateral, the
Secured Party may elect to follow the procedures set forth in the Uniform
Commercial Code for retaining the Collateral in satisfaction of the
Borrower's obligation, subject to the Borrower's rights under such
procedures.
(4) In addition to the rights under this Agreement, in the Event of Default by
the Borrower, the Secured Party shall be entitled to the appointment of a
receiver for the Collateral as a matter of right whether or not the
apparent value of the Collateral exceeds the outstanding principal amount
of the Notes and any receiver appointed may serve without bond. Employment
by the Secured Party shall not disqualify a person from serving as
receiver.
[Signature Page Follows]
101
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name
by its duly authorized officer.
DATAMETRICS CORPORATION
By:
-----------------------------
Name:
Title:
102
Exhibit VIII
Budget
See attached.
103